CORE PROGRAM REPORT

Adaptation to the Fourth Industrial Revolution– Reorganization of the Socioeconomic System –International Institute for Advanced Studies

CORE PROGRAM REPORT

Adaptation to the Fourth Industrial Revolution– Reorganization of the Socioeconomic System –International Institute for Advanced Studies

Table of contents
Summary ............................................................................................................... ⅰ～ⅲ

Part 1: What Is the Fourth Industrial Revolution?.......................................................1
Chapter 1: The Light and Shadow of the Past Industrial Revolutions ................................................... 2
Chapter 2: How Much Human Work Does AI Steal? .............................................................................. 5
Chapter 3: The Actual Situation of Employment Decline Brought About by the Third Industrial
Revolution .................................................................................................................................. 8
Chapter 4: Creating a "Prosperous Society” by Learning from Thomas More and Keynes .............. 11
Chapter 5: Can Basic Income Bring About a Utopia? ........................................................................... 14
Chapter 6: Can AI End Industrial Civilization of the Twentieth Century?............................................. 17
Chapter 7: The Power Hungry AI............................................................................................................ 20
Chapter 8: Changes in Consumer Behavior Force Major Changes to the Automobile Industry ....... 23
Chapter 9: The Real Meaning of Intense Competition for Development of Self-Driving Cars ........... 26
Chapter 10: Zero Marginal Cost Society Brought by the Rise of the Internet ................................... 29
Chapter 11: Strategic Cuts in Electricity Rates Determine Japan's Fate............................................. 32
Chapter 12: What Is the MOOC that Revolutionize College Education? ............................................ 35
Chapter 13: Japanese Institutions and Practices Hinder the Path to the Fourth Industrial Revolution.................................................................................................................................................. 38
Chapter 14 "A New Renaissance” to be Realized by the Evolution of AI ............................................ 41

Part 2: Social Changes Associated with the 4th Industrial Revolution................... 45
Chapter 1: The Role of Japanese TV Stations in the 4th Industrial Revolution .................................. 47
Chapter 2: Copyright Law’s Treatment of Computer Creations ........................................................... 55
Chapter 3: The 4th Industrial Revolution and Innovation in the ICT Field and Intellectual Property
Rights ....................................................................................................................................... 61
Chapter 4: Economics of Causality and Heterogeneity and Machine Learning.................................. 69
Chapter 5: Artificial Intelligence and Economic Growth ........................................................................ 81
Chapter 6: The Fourth Industrial Revolution .......................................................................................... 89[Chapter 7: How Platforms, the Sharing Economy, and P2P Trading Change the Market Economy?
.................................................................................................................................................. 97

Activities of the Study Group........................................................................................ 108
Members of the study group ........................................................................................ 110
International Institute for Advance Studies (IIAS) ........................................................ 111

Notice: The English in this report was machine translated from the original Japanese before undergoing post-editing byhuman translators. In the event of any discrepancies between this translated document and the Japanese original, theJapanese original shall prevail.

Summary

PART 1
What is the Fourth Industrial Revolution?
<Chapter 1 to 14>(Pages 1 to 43)

The Fourth Industrial Revolution is pressing for fundamental changes in the economic society.
Unmanned factories, substitution of office work by artificial intelligence (AI), and substitution offunctions of professionals such as doctors and lawyers by AI will progress without limit. As a result,the following structural changes of the economic society are expected.
First, at least 10 to 20 percent of jobs will be lost. Second, along with the development of theInternet of Things (IoT), the marginal cost (the cost of supplying another unit of goods and services)of many goods and services will be almost 0, as exemplified by information acquisition using searchengines, sending and receiving of e-mail, and renewable energy. GAFA (Google, Apple, Facebook,and Amazon) and Microsoft are among the world's top 5 companies in terms of market capitalization
as of the end of May 2019, leaving manufacturing and financial companies behind. It is because interms of labor productivity and capital productivity, IT companies dominate the manufacturing andfinance industries. Third, in a mature market economy society, consumers begin to value "use" rather
than "ownership." In anticipation of that trend, Uber Technology, the company operating a ride-hailing
app, was founded in March 2009, and it quickly became a global service. In addition, the platformbusiness via the Internet has swept the world. The IT industry or platformers have become the centerof the economy, beating out the manufacturing and finance industries.
In response to these changes in the economic society, a paradigm shift in existing economics,
which is premised on an industrialized society, is required. We look at the direction of economic
paradigm shifts and suggest optimal adaptation measures. (Takamitsu SAWA)

Part 2Social changes associated with the Fourth Industrial Revolution<Chapter 1 to 7>(Pages 45 to 107)

How has society changed in the wake of the Fourth Industrial Revolution, and what is the problem?
Changes in media (Chapter 1), law (Chapter 2), innovation (Chapter 3), economics (Chapter 4), labor(Chapter 5), competition policy (Chapter 6), and industrial structure (Chapter 7) are discussed fromthe perspective of economics and law.

i

CHAPTER 1
The Roles of Japanese TV Stations during the Fourth Industrial Revolution (from page 47)
It has become an era in which it is easier for individuals to post their own videos on shared sites. A huge numberof videos are uploaded by individuals in search of revenue from the ads attached to the videos and the satisfactionof the posts per se and viewed around the world every day. What are the roles of TV stations in this era? In thischapter, we consider the case of Japan, in which television stations are affiliated, and conclude that television
stations are expected to search, select, and edit videos provided by individuals on behalf of viewers, to accurately
and quickly convey important information to local residents, to sort out the images owned by each TV station, andto produce large-scale programs that cannot be produced without large capital and information networks. (Ken-Ichi
SHIMOMURA)
CHAPTER 2
Copyright Law’s Treatment of Computer Creations (from page 55)
This article introduces basic concepts such as "copyrighted works" and "authors" under the current CopyrightLaw, introduces what discussions have been made on legislation for works in which the use of computers is involvedin the creation process, and adds some considerations.
Computer creations (AI products) without human creative involvement are not protected under the current
Japanese copyright law. There has been debate about whether future legal changes should be made to protect AI
products, but protecting AI products is considered not to be consistent with the idea behind the current copyrightlaw. It would be sufficient to take minimal action against the act of claiming that an AI product is a work of one’s
own. (Masaharu MIYAWAKI)
CHAPTER 3
The Fourth Industrial Revolution and Innovations in the ICT Field and Intellectual Property Rights (frompage 61)
In the 4th Industrial Revolution, the importance of R&D investment in the ICT field has been augmenting. However,in the area, the relationship between patent rights among companies is becoming complicated. Besides, in recent
years, a large number of players with different interests have entered the market, and the so-called entangled
patents problem is becoming severe. To solve this problem, fair, reasonable, and non-discriminatory licensing are
required, but such contracts may reduce the profit from R&D. In other words, the patent system that increases theappropriation of earnings from inventions does not function well in the ICT field, and as a result, the appropriate
incentive for R&D is impaired, and R&D investment may decrease in the future. (Koichiro ONISHI)
CHAPTER 4
Causal and Heterogeneous Economics and Machine Learning (from page 69)
Recently, "causal machine learning" which is a fusion of machine learning and econometrics is rapidly advancing.
In my lab, Causal Forest is used multilaterally to examine the strengths and weaknesses of causal machine learning.
While maximizing the explanatory power, it can be used in various ways and has a wide range of application as it
can be used not only for causality but also for heterogeneity. Its strength stems from the assumption of conditional
independence of the data called “Unconfoundedness” and requires controlling the data. Also, the difficulty in deriving
the marginal effect (partial differential coefficient) is a weakness, making it difficult to carry out the social welfare
analysis required for economics. This chapter discusses marginal intervention effects, the economics of causality
and heterogeneity. It also discusses Causal Forest, a machine learning of causality and heterogeneity. (Takanori
IDA and others)iiCHAPTER 5
Problems of Artificial Intelligence and Economic Growth (from page 81)
This paper describes the process of automation by artificial intelligence, and shows that it is important thatthe relationship between tasks that have been automated and tasks that have not been automated iscomplementary or alternative. When automation is completely advanced, economic growth is sustained, butwhen automation is incomplete, sustained economic growth stops, and in the worst case, the economy shrinks.
The labor share does not continue to rise when automation is not fully completed, but when automation iscompletely advanced and labor is no longer needed, the labor share comes to 1 if the relationship between
tasks is complementary. The reason that there are few tasks that use labor but the share is 100% is because
the labor input to non-automated tasks is essential to automated machine tasks. (Koichi FUTAGAMI)
CHAPTER 6
Competition Policy and Economic Analysis during the Fourth Industrial Revolution (from page 89)
The Fourth Industrial Revolution has created platform companies. Platform companies mediate a huge
number of transactions on a daily basis. In recent years, the attribution of personal data collected by the platform
companies and the abuse of a dominant position to their business partners have been a problem. If suchplatform companies merge with each other, would that lead to socially desirable consequences?

What would

be the policy concerns in that case? This paper also discusses how the researchers (both theoretical andempirical industrial organization economists) who play the role of conducting economic analysis, in-houseeconomists, and policy makers should adapt to the 4th Industrial Revolution in the environment where platform
companies have emerged. (Naoki WAKAMORI)
CHAPTER 7
How Platforms, the Sharing Economy, and P2P Trading Change the Market Economy? (from page 97)
This article outlines the changes in the Japanese economy and society from the period of Japan’s higheconomic growth in the middle of Showa and the period of product differentiation and increase in variety to theperiod of economic globalization after the collapse of the bubble economy in the early Heisei period and morethan 20 years of stagnation of the Japanese economy, and from the late Heisei period to the period of Reiwa in
which the trade by the platform sharing economy develops. In addition, this paper outlines the changes broughtby these changes, which have taken place in the Japanese economy and society, in the distribution structure
and market transactions from the production of goods and services to the delivery to consumers. Then, theeffects of the transition of information transmission methods from producers of goods and services to consumers
through advertisement and the change in the composition of marginal costs on the distribution structure ofmarket transaction value, which is obtained by enterprises, consumers, etc. at each stage, to each trading
participant were explained intuitively by plotting. (Tetsuya SHINKAI)

iii

Part 1: What Is the Fourth Industrial Revolution?
Takamitsu SAWA i

The Fourth Industrial Revolution is pressing for fundamental changes in the economic society. Unmanned
factories, substitution of office work by artificial intelligence (AI), and substitution of functions of professionals
such as doctors and lawyers by AI will progress without limit. As a result, the following structural changes ofthe economic society are expected.
First, at least 10 to 20 percent of jobs will be lost. Second, along with the development of the Internet ofThings (IoT), the marginal cost (the cost of supplying another unit of goods and services) of many goods andservices will be almost 0, as exemplified by information acquisition using search engines, sending andreceiving of e-mail, and renewable energy. GAFA (Google, Apple, Facebook, and Amazon) and Microsoft areamong the world's top 5 companies in terms of market capitalization as of the end of May 2019, leaving
manufacturing and financial companies behind. It is because in terms of labor productivity and capital
productivity, IT companies dominate the manufacturing and finance industries. Third, in a mature market
economy society, consumers begin to value "use" rather than "ownership." In anticipation of that trend, Uber
Technology, the company operating a ride-hailing app, was founded in March 2009, and it quickly became a
global service. In addition, the platform business via the Internet has swept the world. The IT industry or
platformers have become the center of the economy, beating out the manufacturing and finance industries.
In response to these changes in the economic society, a paradigm shift in existing economics, which ispremised on an industrialized society, is required. We look at the direction of economic paradigm shifts andsuggest optimal adaptation measures.

Notice: The English in this report was machine translated from the original Japanese before undergoing post-editing byhuman translators. In the event of any discrepancies between this translated document and the Japanese original, theJapanese original shall prevail.

iVice Director of the International Institute for Advanced Studies and Professor emeritus of Kyoto University

1

Part 1: What is the Fourth Industrial Revolution?

[Part 1] Chapter 1: The Light and Shadow of the Past Industrial Revolutions
1. The First Industrial Revolution led by steam

fundamental materials for post-war reconstruction, coalengineand iron, by concentrating limited resources on theOriginally, the Industrial Revolution was a proper noun

recovery of the coal industry and then of the iron and steel

used to describe a series of technological innovation-industry, as an efficient resource allocation method for

driven industrial changes that took place in and aroundpost-war reconstruction. The proposal was put into

the United Kingdom from the middle of the eighteenth

practice

century to the nineteenth century, and the accompanying

Precisely in line with the First Industrial Revolution,changes in social structure. Recently, however, theeconomic policies for post-war reconstruction wereoriginal Industrial Revolution has been called the Firstdrawn up.

Industrial Revolution, and after 2 industrial revolutions,

under

Shigeru

Yoshida's

administration.

Let's go back to the story. The mechanization of

the perception of the times that we are in the middle oftransportation,

such

as

the Fourth Industrial Revolution has been shared. Thus,

steamships,

the word Industrial Revolution changed from a propertransportation of people and goods, enabling long-noun to a common noun. It means “innovation-driven

distance and mass transportation. Traditional express

industrial changes and changes in social structure". The

messengers and horse carriages were replaced by trains,following is a summary of the 4 industrial revolutions

and sailing ships were replaced by steamboats (originally,

focusing on industrial changes from the 3 aspects ofhybrid ships with steam engines on sailing ships). To say

communication, energy, and transportation.

the least, it was truly revolutionary that humans anddramaticallysteam

locomotives

increased

the

speed

and
of

The invention (by James Watt, 1769) of a coal-fired

horses as power sources were replaced by steam

steam engine (a device that converts heat energy into

engines. At the same time, it should be noted that thepiston kinetic energy) marked the start of the First

Luddite Movement, a movement to destroy machines byIndustrial Revolution. Manual printing machines werehandicraftsmen who were afraid of losing their jobs, took

replaced by steam printing machines, and the wide andplace in the middle and northern textile industrial zone ofquick propagation of character information became

the United Kingdom.

possible. At that time, coal, which is a solid fossil fuel, wasbeing used as an energy source to replace firewood and2. The Second Industrial Revolution driven bycharcoal. Coal was used as a fuel for heating. The coal-electricity and oil

fired steam engine was first put to practical use in the

The Second Industrial Revolution, which occurred fromdrainage of underground water in coal mines. Steamthe late nineteenth century to the early twentieth century,

engine drainage extended the life of coal mines andwas driven by new sources of energy: electricity and oil.

enabled mass production of coal.

Typical examples of communication revolution are

The iron-making industry, which used charcoal as atelephone and radio. The advent of phones, which enable

fuel, was suffering from the supply constraints of charcoal,

remote talking (Alexander Graham Bell acquired U.S.

but the supply of cheap coal in large quantities made itpatent for the first time in 1876), must have been more

possible to mass-produce iron and steel, the mostshocking than the modern Internet. A sender's phoneversatile metallic materials. To promote infrastructure

converts audio into electrical signals, which are sent overdevelopment and industrialization, a large supply of

the wire to a receiver's phone, where they are converted

cheap iron and steel is indispensable. As the sayingsback to audio. It was in the early twentieth century that

“Iron is the nation" and “Iron is the rice of industry"

the development of the radio, which transmits andsuggest, a "common sense" that the production volume

receives voice by radio communication, began. The firstof iron and steel is the source of national power has comecommercial radio station, KDKA (a subsidiary ofto the fore for a long time.

Westinghouse

Broadcasting,manufacturer),began

After World War II, on a little different note, Prof. Hiromi

a

major

broadcastinginelectronics
Pittsburgh,

Arisawa of the University of Tokyo (at that time) proposed

Pennsylvania, on November 2, 1920. On the first day ofa priority production system, which “inclines” resource

the opening of the station, it reported the results of aallocation priority to increasing the production ofpresidential election in real time and this incredible

2

Chapter 1: The Light and Shadow Brought About by the Past Industrial Revolution

rendition worked excellently well.

(in the 90s), the price of computers was lowered by

The fact that we have the energy source of electricity

pursuing downsizing while keeping performance andhas brought about the communication revolution of

speed, and the diffusion rate of computers rapidly

telephone and radio. Electric power was also the origin of

increased. At the same time, there is fierce international

the mass transit system, trains. In addition, various

competition

electric appliances were created, and convenience andsupercomputers, large-scale and high-speed computers

amenity of life were dramatically improved. In the earlyfor scientific and technological computing. In the late 90s,

twentieth century, hydropower and coal-fired power wereInternet search engines such as Yahoo and Google

the only sources of electricity. The electricity generated

became available in Japan, and e-mail and mobile

by turning a turbine with the steam generated by heatingphones also spread rapidly, creating a big revolution inwater with the power of falling water or coal-fired power

communication.

for

the

speed

and

performanceof

became possible to be freely transported through the

From the 70s to the 90s, the rush to build new nuclear

power transmission and distribution network. Gasoline,

power plants continued. The surge in crude oil prices

light diesel oil, and heavy oil, which are derived from thecaused by the 2 oil shocks in 1973 and 1979, and therefining of petroleum, another energy source, were usedobligation in the Kyoto Protocol to reduce CO2 emissions,as fuel for transportation means such as vehicles,

have steered the Japanese government's energy policy

propeller planes, and ships.

toward positioning nuclear power as a key energy source.

It is appropriate to say that the twentieth century is the

In terms of transportation, internal combustion engines“century of electricity and oil.” It is ironic that the third

have become more energy-efficient, and trains havesession of the Conference of the Parties to the United

become faster.

Nations Framework Convention on Climate Change was

The Fourth Industrial Revolution, which began aroundheld in Kyoto in December 1997, when the twentieth2005 and is now underway, is driven by Artificial

century was about to end. The Kyoto Protocol wasIntelligence (AI) with deep learning, IoT (which means

adopted, under which 41 developed countries werethat everything is connected through the Internet), andrequired to reduce their emissions of CO2 (to be precise,smartphones. From PCs to tablets, and to smartphones.

greenhouse effect gas including also methane, N2O, 2

Since smartphones are always carried with ourselves,alternative CFCs, and sulfur hexafluoride, but CO2 is thethe Internet has become more mobile, which means thatmajor component) by at least 5% from the 1990 level overcommunication between individuals has become morea period of 5 years from 2008 to 2012. Climate change

dense and regular. Smartphones are essential towas discussed for the first time in international politics atreceiving benefits from car-hailing services such as Uber

the Group of 7 summit in Toronto in June 1988. "Global

and DiDi Chuxing, as well as other sharing economy

climate change" was included for the first time in theservices.

“Economic Declaration” of the Toronto Summit. At the
Paris

Arche

Summit

next

year,

1989,

Since the accident at the Fukushima Daiichi Nuclear

globalPower Plant in March 2011, any developed country has

environmental issues accounted for one third of theactually been promoting to abandon nuclear power

Economic Declaration. The United Nations Conference

generation. With the entry into force of the Parison Environment and Development was held in Rio de

Agreement

Janeiro in June 1992, and the United Nations Framework

decarbonization of power sources became an essential

Convention on Climate Change was adopted. I said

issue. With these 2 factors combined, the global trend isearlier that the twentieth century was the "century of

to position renewable energy as the main power source.

electricity and oil," but to put it another way, the twentieth

The ongoing shift of renewable energy from a supporting

century was nothing less than the "century of carbonrole to a leading role is not unrelated to the series ofdioxide emissions."

technological innovations that drive the Fourth Industrial(November2016),

inaddition,

Revolution.
3. New industrial revolution brought by digitalization

A revolution in transportation is also under way. The

It was computers that drove the Third Industrial

United Kingdom and France, China, and Norway are

Revolution that began in the 1960s. From large

reportedly considering banning the sale of engine-

mainframe computers (from the 60s to the 70s) topowered vehicles after 40, 30 and, 25 years, respectively.

desktop computers (in the 80s) and notebook computers

Level 5 fully self-driving cars are likely to be ready in the3

Part 1: What is the Fourth Industrial Revolution?

not so distant future.

causedanxietytoeveryone.

Factories

becomeEach of the past 3 industrial revolutions has contributed

unmanned and most of the clerical work is replaced by AI.

to the rapid growth and development of the economy andMore than half of the professional tasks, such as

has significantly had a positive effect of improving

diagnosis and prescription by doctors and the creation ofsubstantially the convenience and comfort of our lives. An

debating scenarios by lawyers, might also be handed

industrial revolution literally brings about drastic changes

over to AI.

in the industrial structure. As a result, the industry is

In the past 3 industrial revolutions, the pace ofdivided into winner and loser industries. Individuals are

expansion and deepening of technological innovation

also divided into winners who benefit from the revolution

was moderate, making it generally easier to "adapt" toand losers who suffer the consequences of the revolution.

change. However, as far as the Fourth Industrial

The negative effects of the industrial revolutions, such as

Revolution is concerned, the speed of technologicalfrictional bankruptcies, unemployment, and widening

innovation is unusually fast, which is different from theeconomic disparities resulting from the changes, require

past 3 industrial revolutions. The iPhone, for example,

the government, corporations, and individuals to pay thewas launched in 2007, but now there are nearlycorresponding adjustment costs in return for the benefit

3,000,000,000 smartphones around the world. Googleof macro-economic growth and development. As far as atunveiled its first fully self-driving car in 2010, but its

least the past 3 industrial revolutions are concerned, we

popularization

did obtain more than enough benefits to cover thetechnological innovation, the higher the adjustment costs.

adjustment costs.

In other words, corporate bankruptcies, unemployment,

is

near

at

hand. Thefasterthe

However, as far as the Fourth Industrial Revolution is

and widening economic gaps will be surging at aconcerned, few people talk about a bright future. As istremendous scale and speed. Be prepared, and you willoften quoted, a joint study by Nomura Research Institutehave no regrets. From the next chapter, I will explain how

and Oxford University, in which AI and robots are

to wisely “adapt” to various changes to be brought by the

expected to replace labor, with 49 percent of Japan's

Fourth Industrial Revolution.

workforce expected to lose their jobs around 2030, has

4Chapter 2: To What Extent Will AI Take Away Human Jobs?

[Part 1] Chapter 2: How Much Human Work Does AI Steal?
1. Do 1 out of 2 people lose their jobs because of

researchers in the Ministry of Health, Labor and Welfare's

artificial intelligence?

occupationalclassification

remains

at

a

level

On December 2, 2015, Nomura Research Institutecorresponding to faculties of universities, and it is not(NRI) released a news release titled "In several decades,

further subdivided. However, the sub-sub-classification

49% of Japan's working population will be able to be

categories such as anthropologists, psychologists,

replaced by artificial intelligence, robots, etc. - For eachsociologists, physicists, mathematicians, etc. appear.

of 601 occupations, the substitution probability by

Even though doctors are regarded as a category of thecomputer technologies is calculated." It is a result of a

sub-classification, physicians, surgeons, obstetricians

joint study by Associate Professor Michael A Osborn andand gynecologists, pediatricians, psychiatrists, etc.

Dr. Carl Benedikt Frey at Oxford University. Osborn, an

appear. In addition, there are many occupations that do

associate professor who specializes in machine learning,

not appear in the sub-classification of the occupation

and Dr. Frey, an economist, published similar results inclassification. In other words, the jobs covered by the2013 for the United States and in 2014 for the United

NRI/Oxford University joint study, i.e., 601 occupations

Kingdom. For comparison, they say that 47% ofsubject to the examination of the possibility of extinction,

workforce is replaceable in the United States and 35% in

are a mixture of those that match the 892 categories in

the United Kingdom. In short, the probability that each job

the sub-classification of the occupational classification

will be replaced by AI and robots (the level of possibility

and those that should be described as sub-sub-is expressed as a number from 0 to 1) is calculated, andclassification

jobs with a value of 0.66 or more are evaluated as having

unreasonable to conclude that 49% of all Japanesea high possibility of extinction. It means that the total

workers will lose their jobs only based on the results

number of workers engaged in occupations whose

calculated.

probability of extinction exceeds0.66 accounts for 49% of

categories.

Therefore,

itisratherA sophisticated technique called supervised machine

the total number of workers in 601 industries.

learning is used to calculate the probability of extinction

The conclusion that "1 out of 2 people will lose theirof an occupation. As with economic analysis, increasing

jobs because of artificial intelligence" was rather

the mathematical sophistication of the method to be usedsensational. However, I don't think it was always

never means that the credibility of the results increases.

appropriate to use the source of the data used in thisIn fact, why do the probabilities of physicists andcalculation, “Study on Job Structure II - Analysis of Datamathematicians overwhelmingly outnumber those ofabout Current State, Change, Ability, and Life from a Web

anthropologists and psychologists in the list of theSurvey of 50000 Workers’ Job Trends” by the Japan

probabilities of extinction for each occupation? My own

Institute for Labour Policy and Training (an incorporated

interpretation is as follows. While mathematicians andadministrative agency). The above survey report based

physicists use logical thinking power and mathematics

on the Internet survey was analyzed by repeatedly

freely, that might be because a considerable extent of

extracting a random sample of 24,000 people who are

logical thinking power and mathematical operations fall

engaged in 200 jobs selected in advance for 2 years, andwithin the scope of AI. That said, no one would agree with

conducting questionnaire surveys concerning one of thethe observation that mathematicians and physicists are

attributes, "occupation" (self-report). Nomura Research

relatively more likely to be replaced by AI thanInstitute used that data, but some questions remain.

anthropologists and psychologists.

First, the Ministry of Health, Labor and Welfare

As these examples show, when there are limitations to(MHLW) revised the Occupational Classification Table in

the available data, the conclusions that are drawn are

2012, which is organized into the major, intermediate,

often not convincing, no matter how sophisticatedminor, and sub-classifications, and the number ofmathematical methods are employed. Apart from that,occupations in the sub-classification is 892. And now, awhat kind of jobs cannot be replaced by AI or robots? I

joint study by NRI and Oxford University estimates thewill list the following four.

probabilities of extinction for each of the 601 occupations

The first is the professions of hospitality. In hotels,in the above report. For example, the sub-classification ofrestaurants, and shops, AI-equipped robots can serve5Part 1: What is the Fourth Industrial Revolution?

customers well. For hotel receptionists, concierges,

cancer research and more than 17,000,000 drug-related

restaurant waiters, and sellers, replacing humans withinformation, it gave a diagnosis of a special type ofrobots can save money. In a somewhat long term, it would

leukemia that the doctor had never thought of, and evenbe a good idea to replace people with robots, since theyprescribed an appropriate combination of anticancer

don't need the same training as new graduates, salarydrugs. It reportedly took only 10 minutes. Shortly afterand benefits, holidays, breaks, overtime, and tailoringswitching to chemotherapy as prescribed by Watson, theand washing of their uniforms. However, from thepatient recovered, was discharged from the hospital, andcustomer's point of view, it is necessary to accept thewas able to return to society.

disadvantage of having boring dialogue with robots in

Reading and storing nearly 20,000,000 cancer

exchange for the merit of being cheap. Therefore, even if

research papers and more than 17,000,000 drug-related

it is expensive, guests with abundant money must preferinformation is easy for AI, but it's impossible for humans.

hotels and restaurants that offer hospitality.

It would take nearly 5,500 years even at the rate of 10

The second is the jobs that require non-routine

papers per day. Moreover, it is impossible for a humancommunication. They include teachers of elementary,physician to accurately memorize the numerical values

junior high, and high schools, doctors, nurses, lawyers,

and the like described in papers one by one, and it issalespeople, and caregivers.

inevitable that the memory will be lost as time passes.

The third is the jobs that require creativity. They include

As this case shows, if doctors fall behind AI in diagnosis

artists, writers, researchers, editors, reporters, andand prescription, their jobs are only to interview patients,

entrepreneurs.

inform patients of the diagnosis as told by AI, and offer

The fourth is the professions of management. From theprescriptions drugs. The only thing doctors can do toowners of large companies to the owners of small

demonstrate their talent is to be skilled in interviews. Will

restaurants, there are too many management jobs tothe term “good doctor" become a relic of the past? Let'scount.

show that this is never the case.

The fifth is the jobs in which not only explicit knowledge

In 20,000,000 cancer research papers, there is a

but also tacit knowledge is indispensable. Most

mixture of meaningful and meaningless things in cancer

professional occupations fall under this category. The

treatment. A doctor’s ability depends on whether he/sheskills of so-called “artisans" of traditional crafts andhascooking are supported by tacit knowledge cultivatedmeaninglessness of a paper, just only by skimming it

through experience.

through. Needless to say, reading meaningless papers is

In order to deepen our understanding of what tacitanability

to

judge

the

meaningfulnessornothing but a waste of time.

knowledge is, I will detail below the immortality ofIn the field of medicine and life science in particular,

professional physicians who are said to be exposed tomoreover, there are reportedly many dishonest papers

the fury of AI.

such as fabrication and falsification of images and data.
The ability to see through fabrication and falsification at a2. What are occupations that cannot be replaced byglance is the intuition that doctors as professionals have

AI or robots?

in particular and AI cannot imitate. In addition, having thePhysicians interview patients and, based on blood

ability to read and memorize all of the articles andtests, MRI and CT imaging data, and genetic information,

information published in professional journals does notoffer diagnosis and prescription in light of his/her medical

necessarily mean to exceed the ability of doctors inknowledge and experience. Even a very good doctor candiagnosis and prescription. This is because AI does nothave a chance of misdiagnosis. As part of the AI boom in

haverecent years, the opinion that AI may surpass the ability

accumulated through the diagnosis of many patients asof doctors to diagnose and prescribe medicine has beenclinicians. However, as far as the image analysis of MRI

argued plausibly. Few years ago, in August 2016, theand CT, which is actually used to diagnose cancer, isInstitute of Medical Science, Tokyo University, announced

concerned, it is safe to conclude that AI is superior to

the following cases that demonstrated the power of AI.

radiology doctors and technicians. It is certain that AI,

theknowledge

based

on

the

experience

After entering test data on a leukemia patient andwhich is tireless, free from evil thoughts, and devoted togenetic information on cancer cells into IBM's AI Watson,

analysis, will offer accurate image analysis, in the face of

which has learned nearly 20,000,000 medical articles onlong working hours.

6Chapter 2: To What Extent Will AI Take Away Human Jobs?

The knowledge that doctors acquire through thediagnosis and prescription of AI depend only on the

decoding of technical books and papers is called explicit

enormous amount of explicit knowledge and logicalknowledge. Tacit knowledge refers to knowledge gained

thinking.

through the interview and treatment of a large number of

AlphaGo, developed by Google Deepmind, is a fruit ofpatients and acquired as intuition and sensation.

the deep learning of Go achieved by playing not only

Physicians make the diagnosis by combining these 2

matches with human Go players but also tens of millions

pieces of knowledge. The doctors who are calledof self-matches after learning tens of thousands of gameexcellent doctors have enormous tacit knowledge

records in the past in addition to set sequences. In May

accumulated through extensive clinical experience, let

2017, AlphaGo played against Korea's most powerful Go

alone explicit knowledge. Tacit knowledge cannot beplayer and won a landslide victory with 4 wins and 1 loss.

expressed and transmitted in writing, diagrams, numbers,

The difference between Watson and AlphaGo lies in theor mathematical formulas, or be written in a paper. Whatfact that the latter has performed the deep learning on the

AI learns from papers and information is limited to explicit

refined tacit knowledge based on the enormous number

knowledge expressed in sentences and numbers. Inof matches (several million times as many as those ofother words, the opportunity to gain clinical experience

human players).

(acquire tacit knowledge) is closed to AI.

At least in the world of Go, it could be said that there isI, as an amateur, cannot imagine how much doctors’

no Go player who can beat AI. But in the diagnosis andtacit knowledge, cultivated through clinical experience,treatment of cancer, I am convinced that there should beplays an important role in the diagnosis and prescription

many better doctors than Watson, which lacks tacitof patients, but the following is certain. In the first place,knowledge.

AI doesn't have any tacit knowledge. That is, the7

Part 1: What is the Fourth Industrial Revolution?

[Part 1] Chapter 3: The Actual Situation of Employment Decline Brought
About by the Third Industrial Revolution
1. Optimal allocation of scarce resources

force population is defined as the population aged 15 or

As I mentioned in the previous chapter, the joint

older minus the population who has no motivation or

research project between Nomura Research Institute andcapacity to work because of reasons such as school

Oxford University, in which 1 in 2 people will lose theirattendance, housework, and old age. Since the Labor

jobs due to artificial intelligence and robots, was taken up

Force Survey is published every month, the number oflargely by the mass media. I would like to re-examine theworkers, or people who worked (including part-timers andmeaning and significance of working and propose athose who were absent from work) in the last week of thedesirable reform of labor market that would make “people

previous month, plus the number of unemployed people

happy” for workers who are threatened by theis published as the labor force population of the previous

conclusions

numerical

month. The unemployed refers to those who have notcalculations claiming as if the Fourth Industrial Revolution

been able to work even though they have looked for work

were to make people unhappy, and for middle and highduring the survey period. In other words, the labor force

school students who are anxious about their future afteris the total number of people aged 15 or older who are

graduation, in the run-up to 2030, when artificial

willing to work regardless of whether they have a job or

intelligence and robots will rush into workplace in droves.

not. The ratio of the unemployed to the labor force is

based

on

unsubstantiatedBefore I get into the point, I want you to be patient withcalled the unemployment rate.

the explanation of the fundamentals of labor economics

In the case of Japan, due to the low birthrate and aging

at the risk of boring you.

population, not only is the labor force population itself

The model answer to the question, "What is

declining, but the aging of the labor force population is

economics?" is "the study of the allocation of scarcealso remarkable. The percentage of those aged 25 orresources.” As for scarce resources, fossil fuels such as

younger in the labor force fell from 23.5% in fiscal 2000

petroleum and mineral (metal) resources such as iron ore

to 17.7% in fiscal 2017. On the other hand, thewill come to your mind first. However, when economists

percentage of those aged 60 or older rose from 13.6% inrefer to scarce resources, they refer to 3 "productive

fiscal 2000 to 17.9% in fiscal 2017. During this period, thefactors”: land, capital, and labor. When asked whatratio of non-regular employees to non-agricultural,

evidence of "scarcity" is, the answer is “it is because allforestry, and fishery employees also increased fromof them are valuable (not free)." Diamonds are extremely

25.8% in fiscal 2000 to 38.1% in fiscal 2018, in addition

expensive because they are rare. Drinking water isto the increase in women's labor force participation rate.

valuable because it is rare, while river and lake water is

The term "regular employment" refers to "employment

free because it is not rare.

with a contract to work until the retirement age without

Capital is the sum, in terms of money, of 3 types of

specifying the period”. Non-regular employment refers tocapital: fixed capital such as factories and machines,

employment that is not regular, especially employment

liquid capital such as raw materials, work in process, andwith a limited duration. Lifetime employment, one ofinventory, and financial capital such as cash, stocks, andJapanese style employment practices, was praised as abonds. Financial capital includes the following. Stocks

sign of the strength of Japan's manufacturing industry

and bonds issued by a company are loans fromfrom the 80s to the mid-90s, because it "nurtures theshareholders (direct finance), and are negative assets

loyalty of employees to their organization." However,(liabilities) like loans from banks (indirect finance).

since the Third Industrial Revolution, lifetime employment

Retained earnings (own funds), that is, deposits, otherhas been an obstacle to flexible corporate management,

companies' stocks and bonds, and government bonds,

and many companies have become more dependent on

both domestic and foreign, are positive assets.

non-regular employment.
And now, the decline in the labor force is a major factor
in slowing the potential rate of economic growth. The

2. Declining labor force
The other resource (production factor) is labor. Let's

government is taking the following measures to make up

review the basis of labor statistics just in case. The laborfor the decline in the labor force. They include extension

8

Chapter 3 Actual Situation of Employment Decline Brought about by the Third Industrial Revolutionofemploymentand ‘jobs that have decreased’ in the past 15 years?” byenvironment through work style reform, deregulation ofretirementage,

improvementofKenta Konomi (“Toyo Keizai Online”, September 8, 2015),

employment of foreign workers, etc. In other words, theyfrom 1995 to 2010, care staff was ranked first in the list of

are trying to promote the employment of the elderly and“jobs that have increased” (increased by 1,250,000), withwomen’s participation in the labor force, and to make upsales staff in the second place (510,000) and nursing staff

for the shortage with foreign workers. Instead ofin the third (410,000), followed by cleaning workers

struggling to prevent the decline of the labor force, the(250,000), childcare workers (160,000), and cooks

most effective way is to improve labor productivity (the(120,000). Most of the jobs that have increased over thevalue added per worker). The key to dramaticallypast 15 years, during which computerization has been

boosting labor productivity is none other than innovation.

developed, are due to the aging of society, the increase

Each of the past 3 industrial revolutions has broughtin the number of double-income households, andabout a quantum leap in labor productivity, drasticallyunfavorable employment.

changing production and life. As we have seen, steam

Agricultural workers (down by 1,260,000) were ranked

engines introduced by the First Industrial Revolution,

first in the list of "jobs that have decreased," civil

energy sources of electricity and petroleum by theengineering and construction workers (1,230,000) were

Second Industrial Revolution, and computers by the Third

ranked second, and accounting workers (1,130,000)

Industrial Revolution improved productivity significantly,

were ranked third. Corporate and organization managers

transforming people’s lifestyles by introducing new(620,000), retail store owners and store managers

products that enhance convenience and comfort of life.

(590,000), company executives (560,000), real estateand insurance brokers (700,000), car drivers (470,000),
and printing and bookbinding workers (160,000) follow.

3. "Increased work" and "Decreased work"
As shown by Japan's postwar trajectory, the Second

The decrease in the number of farmers is an extension ofIndustrial Revolution prompted a massive shift of labor

the past trend. The decrease in the number of civilfrom agriculture, forestry, and fisheries to manufacturing.

engineering and construction workers is due to theAfter the mid 1950s, boys and girls, except for the eldest

prefabrication of houses and the reduction of publicsons and heirs of farmers, were rocked by massinvestment. The decline in the number of managers of

employment trains and sought jobs at factories and shops

stores, organizations, and companies, and car drivers isin the 3 major cities after graduating from middle school.

probably due to the recession. The influence of the Third

Since the end of the war, Japan has pushed ahead with

Industrial Revolution (digitalization and computerization)

the Second Industrial Revolution at a dash with the motto

is only seen among accountants, insurance and realof "catching up and overtaking" the advanced nations ofestate brokers, and printing and bookbinding workers.

the United States and Europe. Large companies

These "facts" suggest the following hypotheses.

recruited college graduates or high school graduates,

Hypothesis 1: There are certainly “works that are

while small and medium-sized businesses competed toreduced (replaced by machines)" due to technologicalrecruit young middle school graduates from rural areas.

innovation. There is almost no place for technological

The ratio of workers in the secondary industries

innovation to contribute to an increase in the number of(manufacturing, construction, and mining) increased

jobs to create enough employment opportunities togradually from 2.3% in fiscal 1955. It reached a peak ofcompensate.

36.6% in fiscal 1973 when the oil crisis hit the country.

Hypothesis 2: The job losses due to the Third Industrial

After being flat for a while, the ratio started to decrease in

Revolution were offset by increases in employment due

fiscal 1995 and declined to 23.9% in fiscal 2015. The ratio

to changes in the social and economic environment thatof workers in the primary industries (agriculture, forestry

were not related to technological innovation.

and, fisheries) dropped sharply from 39.8 percent in fiscal

In fact, with aging of the population, the number of1955 to 3.4 percent in fiscal 2015. Meanwhile, the ratio ofworkers in essential jobs (caregiving, nursing, etc.)

employed people doubled from 35.8% in fiscal 1955 toincreased rapidly. Along with the increase in the number

70.0% in fiscal 2015 in the tertiary industries (alsoof working couples, the number of employees in essentialreferred to as the industries other than the primary andjobs (nursery teachers and cooks) increased. The

secondary industries or the service sector).

number of nursing care workers, convenience store andsupermarket clerks, cleaning workers, and others who

According to “What are the ‘jobs that have increased’

9Part 1: What is the Fourth Industrial Revolution?

were forced to be engaged in undesired jobs increased.

anything, AI and robots will certainly bring us to the

It is a real fact that many of the people who have been

depths of misfortune.

deprived of their jobs by computers can find onlyThis time, I focused on explaining the fundamentals of

undesired and low-wage jobs at Hello Work. Fortunately,labor economics. It is impossible that the extreme

the Third Industrial Revolution was able to avoid thescenario that “1 out of 2 people are unemployed” will

disaster of a drastic increase in the unemployment rate,

come true. Innovation and diffusion of AI will contribute toas it progressed in parallel with the aging of society.

improving the efficiency of most jobs. Nevertheless, it isIf “1 out of 2 people will be unemployed” in 2030 due toinevitable that a considerable number of existing

the Fourth Industrial Revolution as predicted, it is unlikely

occupations will disappear. From the next chapter, we willthat new posts to accommodate the 33,000,000 people

refer to the classics of Thomas More and John Maynard

who will lose their jobs will be created. Most of theKeynes to understand the meaning and significance of

unemployed will be forced to be engaged in low-wage“working” for human, and explore ways to make people

work that does not require special skills, or “hard,” “dirty,”

happy by having AI and robots do at least part of or halfand “dangerous” work that many avoid. If we don't doof human labor.

10Chapter 4: Creating a "Prosperous Society” by Learning from Thomas More and Keynes[Part 1] Chapter 4: Creating a "Prosperous Society” by Learning from Thomas
More and Keynes
1. Utopia of Thomas Morenumber moved from the provincial capitals to rural areas.

As described in Chapter 2, according to the joint study

It is like a conscription system, but it is a wisdom to haveby Nomura Research Institute and Oxford University, theas many people as possible learn farming techniques intime when 49 percent of the employed will lose their jobs

preparation for the crisis of food shortage. The work ofwill come in 10 years or so from now. Whether the figure

farmers is not limited to cultivation of fields, raising ofof 49% is true or false, it’s clear that artificial intelligencelivestock, and felling of forests, but also includes theor robots will replace at least a portion of routine skilled

production of breads and fruit liquors, such as wine, andlabor and office work, and that more or less some percent

lumbering. This means that it got ahead of what is now

of workers will lose their jobs. The government must takecalled the fifth industrialization of agriculture.

some measures.

In addition to agricultural skills, all Utopian men andI think if the purpose of the measures is to support the

women must acquire some non-agricultural skills. For

lives of the unemployed or to stimulate domestic demand,

example, they include wool looming, flax spinning,

it is undeniable that they seem to be temporal and ad hoc.

masonry, smithery, carpentry, and so on. It was unusual

And not only that, it makes no sense that technologicalthat all women worked in Europe in the early sixteenth

innovation contributes to dissatisfaction, anxiety, andcentury. The almost only task of family heads is, inmisfortune of the society. Let us consider what measuresmodern parlance, labor management. Family heads

the government must take and how our values must be

direct and supervise each person so that theyreformed in order to make the Fourth Industrial

concentrate on their work and avoid long working hours.

Revolution, just like the past 3 industrial revolutions, a

The working hours per day are 6 hours in total, 3 hours incatalyst for the creation of a better-off society, in which

the morning and 3 hours after 3 hours for lunch and rest.

everyone can experience an increase in their happiness.

40 family members have dinner together. 1 hour afterTo find a clue, let's read the writings of Thomas More anddinner is a time for family to communicate. They play

John Maynard Keynes.

music and have lively talks about noble and healthy

In 1516, shortly after the Sengoku period began

topics there.

following the Onin War here in Japan, an English lawyer,

Lectures are given early in the morning every day. They

Thomas More (1478-1535), published his classic

were originally lectures aimed at educating young elites

masterpiece “Utopia.” Utopia is translated into Japanese

selected as future intellectuals, but many men andas "an ideal world," but More's Utopia is a mock

women in general attend it eagerly. The Utopian people

managerialist state reminiscent of communism. At theare obliged to devote all their leisure time, if any, to thesame time, fair and transparent decentralization, which is

free exercise of their mind and the cultivation of theirmore than epoch-making in the historical context of theeducation. They believe with confidence that happinessearly sixteenth century, is implemented. There are 54

in life is in this very point. Therefore, the level of education

cities (or provincial capitals) in Utopia, and once a year 3of the Utopian people is considerable.

"elders with excellent knowledge and experience" from

Partly because of their deep education, the Utopian

each city gather in the capital to discuss common national

people despise mammonism and extravagant andissues.

dissolute lifestyle. Dogs' collars and toilets are made of

The Utopian people’s main occupation is agriculture,gold and silver earned through exports. This is aand there are farmhouses with all kinds of agricultural

mechanism to enable a quick recovery of gold and silver

equipment in the countryside (the suburbs of theneeded for settlement in the event of an import surplus inprovincial capitals). In addition to 2 slaves, a total of 40

the future. Intellectuals are exempt from physical labor,

men and women live together in a farm household. Therebut if they fail to improve themselves, they will be

is a leader called family head who manage 30 farmdeprived of their privileges and will be turned back tohouseholds. Of those who have stayed in rural areas forcraftsmen. On the other hand, if craftsmen give every

2 years, an average of 20 (about half) people perspare moment to learning, they will be freed from manual

household moved to urban areas, and in turn, the samelabor and can be promoted to intellectuals. Among the11

Part 1: What is the Fourth Industrial Revolution?

intellectuals, diplomatic missions, priests, tribe heads,

convenience and comfort of people's lives.

and mayors are chosen.

The meaning of Keynes's phrase "solving economic

Hearing that only 6 hours per day are spent to work,

problems" can be deduced from the following anecdote.

many readers will think that the supply of goods

For those who work hard for their daily food, leisurenecessary for life is insufficient. But in Utopia, 6 hours oftime is a cherished pleasure. However, the interest in thework is enough because everyone, except for a handful

broaderof intellectuals, work and they have simple life, keeping a

production, technology) begins to fade proportionally.

dress in a good condition for a long time and wanting no

Many people will pay a great deal of attention to ethicalother luxuries. What is important is that most men andquestions such as "how humans should live" andwomen devote their leisure time to intellectual production

ecological issues such as "how to prevent the destruction

activities. Thomas More regards the maximization ofof the natural environment" and "how to maintainleisure time and the intellectual activities of the Utopian

biodiversity." The government will have no choice but topeople as the culmination of “happiness” in life.

respond to people's requests and promote academic

economy(income,assets,ownership,

At the beginning of the sixteenth century, when the

research and enlightenment activities, such as literature,

concept of technological innovation (or innovation) didart, history, philosophy, etc., which have been neglected

not exist, it was possible to dramatically reduce theor treated coldly because they have nothing to do with thenumber of working hours (improve labor productivity)

economy. Only when technological innovation solves

required for the production of necessary goods andeconomic problems, the time will come for humanities,

services by changing people's consciousness (avoiding

literature, and art, which are useless to the economy, toluxury) instead of innovation. Thomas More says that

revive. This will be just until they get that leisure time.

people are made “happy” by dedicating their leisure time

An old odd-job woman wrote a fateful epitaph forearned by reducing their working hours to intellectual

herself like the following. "Don't grieve for me, my friend,production.

don't weep for me, because I don't have to work foreverThomas More’s “Utopia” provides valuable tips forfrom now on." This was her paradise. Like other people

people who lose their jobs due to artificial intelligence (AI)looking forward to their leisure time, she imagined how

and robots to live happily.

wonderful it would be to spend her time listening to theradio. "Hymns and delightful music will be in heaven. But
I have nothing to do with singing."

2. Keynes’s “Essays in Persuasion”
In 1931, John Maynard Keynes predicted thepossibility of technical unemployment that would occur

3. Loss of possessivenessbecause "the speed of finding ways to reduce the use of

In the United States, Europe, and China, the sharing

the labor outweighs the speed of finding new uses for the

economy is now taking advantage, providing services

labor" (“Essays in Persuasion,” the following is thethat allow us to “use” goods when we need them, withoutsummary with my personal views). In other words,

time and effort, rather than to “own” them. Taking

technological innovation rapidly drives labor efficiency

automobile as an example, in developed countries, the(replacement by machines), and as a result, more people

household penetration rate of passenger cars is aroundlose their jobs. On the other hand, the rate of

90%. The costs associated with “ownership,” such as

unemployment rises, at least temporarily, because theownership tax, insurance premiums, parking fees, gas

pace of finding new uses for the workforce (creating new

bills, and time costs due to road congestion, arejobs) tends to lag.

considerable. Uber Technologies, a ride-hailing service

Unemployment resulting from technological innovationcompany founded in 2009, has taken this opportunity.

is a great long-term benefit, as it means that “people

Uber offers the following services. You travel by train tosolve their own economic problems," although in thethe nearest station of a business destination. A taxi, ashort term it will hurt people. When economic needs are

private passenger car (equivalent to an unlicensed taxi,met, people seek to devote their time and energy to non-which is legally prohibited in Japan), or a short-time rental

economic purposes. Machines boost labor productivity

car, which has been reserved in advance by aand free us from labor and hardship. Machines pushsmartphone, is waiting in front of the station and takes

down the marginal cost of production, providing cheap

you to the business destination in a short time. In the casegoods and services, and dramatically increasing theof a rental car, you can leave it in the parking lot of the12Chapter 4: Creating a "Prosperous Society” by Learning from Thomas More and Keynes

nearest station on your way back. The smartphone will

and the scale of the ride-hailing service market is limited

take care of everything from the payment of the fee to thedue to the regulation on unlicensed taxis. In the future,locking and unlocking of the car. What brought about thethe sharing economy is expected to expand further, notsharing economy is none other than the explosive

only in passenger car, but also in clothing, bicycle,

prevalence of smartphones.

guesthouse, and other markets.

The year-to-year cumulative cost of using a ride-hailing

The impact of losing the desire to own on the real

service should be much lower than the annual cost of

economy is immense. You do not own things and use

owning a private car (including the depreciation of thethem as needed. Market expansion of the sharing

purchase cost). In the case of a major auto power like theeconomy will certainly depress economic growth, but it isUnited States, Uber was able to develop a large market

also certain that it will improve the convenience of life. No

because the "utility" of owning a private car is almost

one would have expected smartphone penetration tononexistent. On the other hand, in Japan, the "show off"pave the way for the sharing economy.

effect of owning high-end passenger cars is still large,

13

Part1: What is the Fourth Industrial Revolution?

[Part 1] Chapter 5: Can Basic Income Bring About a Utopia?
1. 3 points of contention over basic income

regions is currently being conducted. Besides that, in the

As we have repeatedly stated, it is likely that a

Netherlands, Finland, and Canada, community-based

considerable number of workers will lose their jobs as asocial experiments are under way. The following are 3

result of the Fourth Industrial Revolution. At least in Japan,

points of contention about for and against the BI system.

a proposal to introduce the basic income made by

The first is a discussion about the pros and cons ofTomohiro Inoue in “The Future of Artificial Intelligence

providing the same amount of BI to both the poor and theand the Economy: The Great Collapse of Employment inrich. Liberals and social democrats argue that an income2030” (Bunshun Shinsho, 2016) is widely supported.

ceiling should be set. Conservatives, who thoroughly

Basic income (BI) is translated as "basic income

insist on simplifying the social welfare system, oppose

security" or "minimum living standard security" insetting an income ceiling. There are both arguments forJapanese. The system provides the same amount ofand against whether to differentiate payments to adults

income to all citizens (including children) without

and minors.

exception. This system is characterized by providing

Second, if a BI of 50,000 yen is provided per month,

benefits to each individual citizen rather than to eachthe total amount to be paid to the 125,000,000 population

household. In exchange for the introduction of the BI

is 62,500,000,000,000 yen. A BI of 200,000 yen that asystem, existing social security systems such as basic

family of 4 receives in a month can be regarded as

pension, livelihood protection, and minimum wages will

enough money to live a minimum standard of living. The

be abolished or reduced in whole or in part.

question is how to secure financial resources to cover theOriginally conceived as a measure against poverty, it

enormous

government

expenditureofhas been recommended since the 1980s by neo-classical62,500,000,000,000 yen. If the social security systems

economists aiming for a "small government" as a means(excluding medical care) are abolished in exchange forof simplifying the social security systems. This is in thethe introduction of the BI system, the account will balance.

hope of reducing administrative costs by unifying the

In fiscal 2016, the amount of social security benefits issocial security systems based on individual measures.

118,300,000,000,000 yen. If medical expenses of

The aim of the BI system is to correct the negative effects

37,900,000,000,000

of various social security systems, which require time and80,400,000,000,000 yen, which is more than theeffort for qualification, resulting not only in incurring

expenditure for BI. Therefore, the introduction of the BI

wasteful expenses such as labor costs, but also in

system will reduce social security expenses. In addition,

discouraging low-income people from working, while atthe fact that it is no longer necessary to pay social

the same time, leaving the working poor behind.

insurance premiums other than those for medical care will

yen

are

subtracted,

itisOn the other hand, about half of liberal economists andlead to the reduction in households' non-tax burden. The

political parties support the introduction of the BI system

abolition of the long-term care insurance systemitself, or a modified version, in the sense that it

threatens the lives of elderly people, even if it isguarantees a minimum standard of living for the people.

unavoidable to abolish the state's share of pensions andThis is also true of socialist parties. In Japan, the Liberalpublic assistance.

Party is so enthusiastic about introducing the BI system

If the social security systems remain unchanged andas stated in its election pledge, but the Liberal Democratic

the consumption tax is used as a revenue source, theParty is clearly opposed to it. Neither other ruling nor

consumption tax rate should be raised by 21 percent. The

opposition parties have come up with a clear revised

consumption tax rate of 29 percent is a high level, which

version, although they have expressed more or lessis unprecedented in Europe and actually unacceptable.

approval.

Therefore, it must be said that it is impossible to realize a

In June 2016, a referendum was held in Switzerland on

BI system that guarantees a minimum standard of living

the introduction of the BI system (providing 280,000 yen

to all citizens while maintaining social security as it is.

for adults and 70,000 yen for minors), which was rejected

Then, revised proposals are proposed, such as setting anby the majority of the people. However, a social

upper income limit, creating a gap between adults andexperiment on the introduction of the BI system in specificminors, and increasing tax revenues by increasing the14

Chapter 5: Can Basic Income Bring About a Utopia?

progressive rates on taxable income.

mechanization of the economy. That's because Inoue is

The third question is whether the introduction of the BI

intending to use the personal income tax increase as asystem will increase or decrease the motivation to work.

source of revenue for BI. Since the majority of personal

On the one hand, there are people who don't want to work

income comes from compensation of employees, it is(who like laziness, or want to devote time to volunteer

hard to accept the proposal as a solution to the "bleak

work or hobbies) if a minimum standard of living isfuture" in which "the development of AI will deprive moreguaranteed. On the other hand, there are people who

people of their jobs and cut off their income sources,"choose to get jobs they like and work actively regardlessleading to a sharp decline in compensation of employees.

of the amount of salary because they feel secure that a

It is like the saying, “Counting chickens before they areminimum income is guaranteed.

hatched."2. Pure mechanized economy and basic income

3.

“In a pure mechanized economy, the ‘basic income’ is

Dystopiathat

reduces

opportunitiesforparticipation

the most appropriate system to guarantee the income of

In addition, Inoue said as follows. “The pureworkers (who have lost their jobs),” said Tomohiro Inoue.

mechanized economy makes BI much easier to“It is desirable to set a BI payment of about 70,000 yen

implement. At that point, the economy sees explosive

per person per month, in the sense that extreme inflation

growth, with growth rate increasing year by year, and thecan be avoided,” he added (some parts of the quotations

tax income also increases explosively. The government

are summarized in author’s own way, and the same

will get enough taxes to make it ridiculous to worry about

hereinafter). The total amount of annual payment will be

the funding source for BI." “It can also increase benefits

100,000,000,000,000 yen, but referring to "Basic Income"in proportion as the tax increases. If we adopt a rule

(Chuko Shinsho, 2015) by Yutaka Harada, “a total ofwhere a certain percentage of income, say 25 percent, is

36,000,000,000,000 yen will be transferred to financial

allocated to BI, the amount of BI will increase at a rate

resources for BI through the abolition of the government's

similar to the economic growth rate."

contribution to pension, child allowance, and livelihood

Why is the "explosive economic growth" possible? Why

protection, and through the partial reduction of expenses

will personal income tax revenues increase at the samefor the measures for small and medium-sized enterprises,

rate as economic growth in the AI society too? Inoue does

public works expenses, and expenses for agriculture,

not explain the reason at all. Basis of the argument that

forestry, and fisheries business (all of them intend to

IB is preferable to public assistance based on household

secure income as one of the purposes).” He also

units is also hard to accept, given that about 50% of

proposed “a 25 percent income tax increase to raise ahousehold heads lose their jobs and their income is 0.

remainder of 64,000,000,000,000 yen, calculated by

The monthly income of a 2-member household with an

deductingfromincome of 0 is 140,000 yen, and the monthly income of a

100,000,000,000,000 yen.” “If a person with an annual

5-member household with 3 children is 350,000 yen. The

income of 4,000,000 yen lives alone, the net burden ismonthly income of the latter is sufficient for a modest life,

only 160,000 yen, the remainder calculated by deducting

but it should be said that the monthly income of the former

an annual benefit of 840,000 yen (70,000 yen x 12) fromis insufficient to live a minimum standard of living.

a tax increase of 1,000,000 yen...and a BI benefit for a

Although a significant effect can be expected as afamily of 3 people is 840,000 yen x 3 = 2,520,000 yen.

measure to cope with the declining birthrate, the basis forSince the tax increase amount is 1,000,000 yen, a net

Inoue's judgment that the BI system, in which the amountbenefit of 1,520,000 yen will be generated to thisof benefits differs significantly depending on the number

household (omitted). As for the income of an elderlyof family members, is more desirable than public

people living alone who used to live only on the basic

assistance is unknown.

36,000,000,000,000

yenpension, a basic pension of about 960,000 yen (80,000

Inoue said, "AI without BI brings dystopia. But AI withyen × 12) per year will be reduced by half to 480,000 yen

BI brings utopia." In the previous chapter, Thomas More's

due to the abolition of the government’s share of the"Utopia" was introduced, but in More's Utopia, people

pension costs, but it will be increase to 132 (48 + 84) 0000

work 6 hours a day and devote a lot of leisure time toyen with BI added,” the estimates say.

intellectual activities. On the other hand, in Inoue’s Utopia,

The above estimates have nothing to do with the pure

1 in 2 of the labor force live like “Every day is Sunday."15

Part1: What is the Fourth Industrial Revolution?

I'm sure they have too much leisure. It is hard to believe

trust the figures from the joint research between Nomura

that such a society is sustainable.

Research Institute and Oxford University) are actually

One of the necessary conditions for people to feel

welfare recipients. Both old and young people are given

happy is the feeling of "participation" in some sense. In

less opportunity of “participation,” and live an idle life.

Inoue’s Utopia, 1 out of 2 people have too much time on

This is truly a dystopia. Everyone wants to be included intheir hands while living a modest life with BI because they

the society through work, and long-term exclusion fromare deprived of opportunities to participate such as work,

workplace must be painful and difficult to endure. Anyone

human interactions, and social contributions. To me, this

who lives in a society, where 1 in 2 people are excluded

is just dystopia.

from their workplace whether they like it or not, will feel

As of February 2017, the percentage of households

anxious and helpless.

receiving public assistance in all households is 1.6%

We will see later what means are available to give

(1,640,000 households). The majority of them are elderly

reasons for living and feeling of participation to people

households. However, in a utopia of “AI with BI” which

who have been excluded from the so-called productive

Inoue proposes, 49% of households (as far as we canlabor, or in other words, to create a Utopia brought by AI.

16

Chapter 6: Can AI End Industrial Civilization of the Twentieth Century?

[Part 1] Chapter 6: Can AI End Industrial Civilization of the Twentieth Century?
1. Who are “teachers" of machine learning?

on employment as follows. Artificial intelligence (AI)Let us begin our discussion by showing that the results

certainly helps make most jobs more efficient, but few

of the joint research between Nomura Research Institutejobs will disappear completely. This is because there are

and Oxford University, which we have covered a number

almost no professions requiring only routine work, whichof times, or in other words, the conclusion that “along with

AI is good at. In other words, there are actually very few

the development of the Fourth Industrial Revolution,

professions

many occupations will disappear and 49 percent of the(knowledge that can be expressed in words orlabor force will lose their jobs,” is nothing but a product ofmathematical expressions) that AI can acquire very easily.

“arbitrariness” and hard to trust.

that

requireonly

explicit

knowledge

There used to be a profession of telephone operator.

A technique called "supervised machine learning" isPick up a handset on the left side of a wooden box phone,used to derive this formidable number. It means that theand turn a handle on the right side to connect the phonecharacteristics of each occupation represented by

to an operator. The operator says hello. You give him or

numerical data or binary data (Clause 2) are applied to aher by voice the phone number of someone who you wantgiven (defined in advance by teachers) mathematicalto talk to. The operator connects the phone and then you

formula and each “extinction probability” is calculated.

can begin a conversation. Until the connection was

Who in the world are the machine learning teachers who

automated, telephone operator was one of women's

give mathematical expressions? The “teachers” ofdesired professions. But with the automation of themachine learning are none other than these 2 people,

telephone connection, the profession of telephone

Michael A. Osborn, an associate professor at Oxford

operator has almost disappeared. However, when you

University, and Carl Benedikt Frey, a fellow at Oxford

call the main number of a large corporation, government

University, who made a name for themselves byoffice, or university, you can still find an operator who

publishing a paper titled "The Future of Employment" inallocates your call to the extension line. However, theSeptember 2014 and showing the shocking results that

number of operators is small compared to those that"47 percent of the U.S. labor force will lose their jobs

Nippon Telegraph and Telephone Public Corporation

because they will be deprived of their jobs by artificial(now NTT) employed in the past.

intelligence and robots." Associate Professor Osborn isWith the progress of the Fourth Industrial Revolution,

an expert in machine learning, and the fellow Frey is anthere can be few jobs that will disappear completely, but

economist.

it is certain that the efficiency and speed of operations will

Of course, given that the characteristics of eachincrease. Certified public accountants and certified public

occupation to be used (or to be profiled) andtax accountants are judged to be occupations thatspecifications for the formulation of the mathematical

disappear with a probability of around 90%. Therefore, it

formula to calculate the extinction probabilities are given

is concluded that both occupations will disappear

by the “teachers” without clarifying the basis, it iscompletely. However, I believe that this is not possible. In

inevitable that the results themselves are criticized as aaddition to explicit knowledge, conducting financial andproduct of arbitrariness by the non-divine teachers (thetax audits requires tacit knowledge (knowledge thatabove 2 researchers). In the case of Japan, 601

cannot be expressed in words or formulas, and therefore

occupations were subjected to the evaluation of whether

cannot be acquired by AI) based on a wealth ofor not they would disappear. An occupation whose

experience. However, it is expected that the number ofprobability of extinction is calculated to be 60% or moreaccountants employed by auditing firms will be reduced

is judged to be "extinct" (completely replaced byby half due to the improved efficiency of operations.

computers). The joint study concluded that the total

The same is true of law firms. Most of the work of

number of workers in jobs that will disappear accounts forparalegals who assist attorneys by carrying out routine

49 percent of the labor force.

and limited legal work under the supervision of attorneys
will be entrusted to AI, which remembers all the judicial
precedents and has memorized the compendium of the

2. 10 to 20 percent of the labor force lose their jobs

Six Laws. Therefore, it is very likely that the profession of

I consider the impact of the Fourth Industrial Revolution

17

Part 1: What is the Fourth Industrial Revolution?

paralegal will disappear. However, it is impossible that theJapan in a year, and is almost equal to the gross national

profession of attorney will disappear. That's because AI

product. National income (at factor cost) is distributed todoesn't have a role to play in interviews with clients andcapital and labor that contributed to production. Income

fierce bargaining in courtrooms. However, it is undeniable

distributed to labor is compensation of employees, andthat the number of lawyers required will decrease

income distributed to capital is redistributed to corporate

because the time required for routine legal work can beincome, interest income, dividend income, and directors'

greatly reduced and the number of lawsuits that a lawyer

bonuses. The labor share (compensation of employees

can handle will increase.

divided by national income) in fiscal 2016 was 62.2

As described above, although there are few jobs thatpercent. After all, just under 60,000,000 people (about

will disappear as a result of the Fourth Industrial

half of the population) are employed and contribute to

Revolution, the number of workers in most jobs will moreproduction, so many readers are convinced that it isor less decrease because each job is made more efficientreasonable for the workers to be given a little more thanby AI or robots. Therefore, even if 49 percent is excessive,

60 percent of the value added that is produced in a year.

it is highly likely that 10 to 20 percent of the labor force

As mentioned earlier, however, 10 to 20 percent of thewill lose their jobs.

67,200,000 people in the labor force will lose their jobs if

On the other hand, the Fourth Industrial Revolution is

many factories become unmanned (robots replace

unlikely to create new jobs. Most of the unemployed haveworkers), the majority of clerical work are entrusted to AI,

to look for jobs at Hello Work. Unless they make up their

the number of professionals required decreases, andminds and receive any kind of vocational training, they

professional assistants are no longer be needed. Half ofwill have no choice but to get "tough," "dirty," andthem have to seek jobs in sectors such as nursing care,“dangerous" jobs which were often avoided during theconstruction, retail, and cleaning, where labor shortages

economic boom. The revised Immigration Control Law,

are chronic and at the same time, replacement by AI andwhich was passed and enacted by the House ofrobots is difficult or it is cheaper to hire humans.

Councilors in December 2018, legalized the acceptance

And now, income generated in the country is taxed.

of foreign workers in 14 industries, including construction,

There are national taxes and local taxes (in order to makedining-out, nursing care, agriculture, and accommodation.

the story easier to understand, we focus only on national

Depending on the level of proficiency in the skills, workers

taxes). Graduated taxation is applied to taxable income

are divided into those who can stay for up to 5 years (butafter various deductions from income. Under the current

cannot renew the period and accompany their family

tax system, the national tax rate imposed on high-income

members) and those who can stay for 1 to 3 years (andearners is close to 45 percent of taxable income. As for

can renew the period as many times as they want andthe tax rate imposed on low-income earners, on the otheraccompany their family members). Those who are

hand, taxable income is smaller and the ratio of income

particularly skilled are classified as the latter. At present,

tax to pre-tax income is extremely lower because thethe above 14 industries are suffering from a serious labordeduction rate is relatively higher. The ratio of total

shortage, but the situation will change drastically in 10

income tax revenue to total compensation of employees

years, and fierce competition is expected between

is around 5 percent. On the other hand, the tax rate forforeign residents and unemployed Japanese for jobs ininterest and dividend income is uniformly 20%. The

the above 14 industries.

corporate income tax rate is around 23% (in the case of
corporate tax, the fact that there is a reduction for small
and medium enterprises, and in addition, local tax are

3. AI should be used to realize a utopia

omitted).

Although the introduction has been long, in thepreviouschapter, I refuted Tomohiro Inoue’s opinion that

According to the Nomura-Oxford joint study, the rate of"the minimum standard of living for the unemployed

distribution to workers, i.e. the share of the compensation

should be guaranteed by introducing the basic income."of employees in the national income, will be almost

Now, I will present my opinion on what alternatives arehalved from 62 percent. It means that the distribution ratepossible.

to labor and capital changes from about 6:4 to 3:7. If the

The national income is the sum of the added value

average tax rate on the income allocated to capital is 22

earned by individuals living in Japan and corporations

percent, the national income tax revenue will increase bywith headquarters in Japan from both inside and outside

about 43 percent. On the assumption of the tax revenue

18

Chapter 6: Can AI End Industrial Civilization of the Twentieth Century?

in fiscal 2017 (31,300,000,000,000 yen, which is the total

towards a utopia in the sense that people will be freedof personal income tax revenue and corporate tax

from the drudgery and burden of labor and become more

revenue), total tax revenue from personal income tax andinterested in intellectual activities. By increasing thecorporate tax will increase by about 15,000,000,000,000

number of staff involved in caregiving, geriatric nursing,yen. It is the best way to increase employment in public

and primary and secondary education, the elderly, theservice sectors such as research, art, education, medical

sick, and children will benefit greatly. The intellectual

care, nursing care, and environment by utilizing theutopias of Thomas More and Keynes can be approachedincreased tax revenue. If the average cost of employment

by promoting academic research and enlightenment

is 4,000,000 yen per person, about 3,750,000 people canactivities such as literature, art, history, and philosophies,

be employed at 13,300,000,000,000 yen. In other words,

which have been neglected or treated coldly because

about 10% of the unemployed can be engaged in public

they have nothing to do with the economy. Only whenservices. As of January 1, 2018, the number of national

technological innovation solves economic problems will

public employees is 580,000 and the number of local

humanities and art regain their rights. AI will put an end

public employees is 2,740,000.

to the industrial civilization of the twentieth century, which

Whether it is the utopia of Thomas More or the futureprioritizes the contribution to economic growth. Isn't thatsociety that Keynes predicted, in which many people will

great?

lose their jobs due to technological innovation, it is a step

19

Part 1: What is the Fourth Industrial Revolution?

[Part 1] Chapter 7: The Power Hungry AI
1. Electricity charges account for more than half of thethrived on gold

AI development cost of 400,000,000,000 yen

Located near the Italian border of Switzerland, theAs the advance of the Fourth Industrial Revolution

village of Gondo once prospered from gold mining. Afteradvances, factories will become unmanned and simple

the closure of the gold mine in 1891, the population

clerical tasks will be replaced by artificial intelligence (AI).

gradually declined, and now it has become a poor village

This is just a "forecast," and we must say that at present,with a population of 40. In early 2017, a venture company

it is uncertain whether it will be realized or not.

called Alpine Mining offered to “build a blockchain mining

Technical availability doesn't immediately drive peoplesite" in this forlorn and poor village. Of course, the village

and businesses to put them to practical use. Even if it ismayor had no idea what the company was going to mine.

technically possible to replace human labor withAccording to information of the Internet, a blockchain

computers, rational companies and governments will

(distributed ledger) is an "encrypted digital system

continue to employ cheaper workers if massive initial(ledger) for storing and trading virtual currencies." Virtual

investment or routine operating costs (equivalent tocurrency is "a kind of digital currency that can be used incompensation for AI or robots) are required for replacing

exchange

human labor with AI or robots. Because of cloudunspecified people and companies through the Internet,

computing, you don't have to install a large computer atand can also be exchanged for legal currencies such as

the initial investment stage. One PC is enough. However,yen,

the right to access to cloud computing services is

exchanges." So what can be mined in this kind of mining?

expensive.

Mining is said to mean “the calculation to check a

for goods and services

dollar,

euro,

and

won

among

throughmany

specialized

The reason why it is so expensive is that AI has toblockchain and see if there is any illegal remittance and"learn" a huge amount of knowledge through the so-

falsification by decoding encryption because transactions

called machine learning to gain far more intelligence thanof cryptocurrencies are encrypted.”

humans have. This requires several or tens of high-speed

A company to mine blockchains of cryptocurrencies willcomputers to run for a long time. For example, Watson by

be established in Gondo Village, which once prospered

IBM, which is touted for its outstanding ability in cancer

in gold mining. The village mayor welcomed it, saying, “Itdiagnosis and anticancer drug prescriptions, has learned

is just what I wished for.” The mine began operations inabout 20,000,000 cancer-related clinical papers andNovember of the same year, but only 6 workers moved

about 17,000,000 drug-related materials. It is no surprise

in. The cryptocurrency mining site is a small room withthat Watson, which has so much knowledge and abilities

computer servers flashing lights and giving a low growl,

to search information and recognize image rapidly andcovered with tangled cables and pipes. If you solve a

accurately, demonstrates superhuman diagnostic andcomplex mathematical problem and mine a blockchain

prescription capabilities in cancer genomic medicine.

successfully, the reward is paid in cryptocurrency. A

However, it is said that (a tuition fee of) about

number of mining companies are competing for high400,000,000,000 yen was spent to have Watson learn arewards. Because a variety of cryptocurrencies arehuge number of articles related to cancer medicine.

traded around the world, computers have to run 24 hours

Probably, it can be said that electricity charges accountat full capacity.

for the majority. As well as the power consumption

Why did Alpine Mining build the new mine in Gondo

required to operate a high-speed computer, the power

Village? There is a high-output hydraulic power plant in

consumption required to cool the heat generated by the

Gondo Village. Of course, it was an electric power

computer is considerable. With a variable fee, which iscompany that built the power plant. In compensation for

determined in proportion to the number of diagnoses andthe construction of the power plant, the price of electricity

prescriptions, added to the basic fee for obtaining accessin Gondo Village has been reduced to one-third of theto Watson, it will cost 100 to 300 million yen per year.

official price. In addition, the high altitude and cold climate
of Gondo Village contribute to saving power for coolingcomputers. As a power-intensive company, it was a really

2. Virtual currency mining site built in a village thatrational choice for Mining to focus on cheap electricity

20

Chapter 7: The Power-Hungry AI

rates and cold climate in Gondo. At any rate, Gondo

professional and amateur Go players, and it is not always

Village's electricity consumption grew by 50 percent at

the best way to play games following them. The reason

the same time as mining began. When discussing thewhy all the top-class professional Go players bowedpros and cons of virtual currencies, wasteful use ofdown to AlphaGo is that even professional Go players

electricity has sometimes been pointed out.

would find it difficult to find the right move within theallotted time in the face of moves by AlphaGo, which
seem to be chimerical under the paradigm (framework) of

3. Using 12,000 times more power than humans
The following news from Google surprised people inset sequences and have been acquired throughAugust 2012. They had an artificial intelligence (1,000“unsupervised learning” by repeating self-playing games

high-speed computers) with a multi-layer neural network

tens of millions of times.

read 10,000,000 still images randomly taken from

Of course, there is no way that a human Go player will

YouTube over a period of 3 days. As a result, the AI

be able to compete with AlphaGo 0, which has developed

acquired an ability to recognize cats (neurons responding

a new paradigm (set sequence) through 4,900,000 self-

to cats). This is considered the beginning of deep learning.

matches. 4,900,000 games can be played in about 45

The AI was able to recognize cats (or sort out images inyears, assuming that 200 Go players play 3 games each

which cats appear) without asking for any humanday. AlphaGo 0 achieved to play this number of games in

instruction. It is the so-called "unsupervised learning."

just 3 days and created a new paradigm through deep

Watson has learned a huge number of articles related tolearning. Even a professional Go player cannot

cancer medicine under the direction of “teachers.” In this

immediately understand the meaning of a move that hesense, Watson is the gift of “supervised learning.” Even aor she has never seen, and in the end, would lose by a

3-year-old child naturally acquires the ability to recognize

wide margin due partly to the limited allotted time.

cats. To embed the ability to recognize cats, which is

So how much electric power is needed for the deep

common for humans, we have to keep 1,000 computerslearning for AlphaGo and one match? When one thinks

running for 3 days. That consumes a lot of power.

intensively, he or she consumes 21 watts of energy in

In March 2016, Google DeepMind’s Go software with aterms of electricity. The source of energy is, of course,

multi-layer neural network, AlphaGo, played 5 games

food. AlphaGo, on the other hand, consumes 25,000

against a world-class Korean player, winning a landslide

watts of electricity (equal to the amount consumed by

victory with 4 wins and 1 loss. It also defeated a Chinese

12,000 people). The energy efficiency of the human brain

master with 3 wins and 0 losses. AlphaGo is an excellent

is surprising.

product that was developed by deep learning based on“unsupervised learning,” which means to repeat self-

4. Electricity rates are a decisive factor for theplaying games tens of millions of times, in addition to

introduction of AI“supervised learning” of the rules, set sequences, and an

The cost of AI depends entirely on power consumption

enormous number of past game records of Go. The

required for deep learning and routine operations. So thedevelopment cost was 1,000,000,000,000 yen. Probably

key to decide whether humans should be replaced by AI

the majority of this is electricity cost.

and robots in factories and offices is electricity charges.

Progress in machine learning is rapid. In an academic

Aluminum consumes so much electricity during thepaper published on “Nature” on October 19, 2017,

refining process that it is called a “can of electricity." After

DeepMind revealed AlphaGo 0, the ultimate gift of deep

the oil shock, Japan's aluminum smelting industry, whichlearning. What “teachers” taught to this latest version of

had been the second largest producer in the Western

AlphaGo was only the rules of Go. By repeatingworld following the United States, had to disappear due

4,900,000 self-playing games (unsupervised learning) into the rise in electricity rates. Later, Canada and Iceland,

just 3 days, AlphaGo 0 has acquired an excellent ability

whose main energy sources are hydroelectric andto beat the old version of AlphaGo, which won a landslide

geothermal power, became major aluminum producers.

victory over the Korean Player, with 100 wins and 0

Just as the blockchain mining plant was built in Gondo

losses. The “fact” that it is harmful and useless to learn

Village, Switzerland, where electricity rates are low,set

providers of cloud computing services will have to besequencesandrecords

ofgames

betweenprofessional Go players suggests the following.
Set

sequencesarea kindofconvention

located in Scandinavian countries, Switzerland, andfor

Canada, where electricity charges are low. At the end of21

Part 1: What is the Fourth Industrial Revolution?

the twentieth century, manufacturers in developed

large portion of its domestic value-added, which iscountries moved their production bases to East Asian

distributed to capital, flows abroad (it is included incountries in search of cheap labor. Similarly, as

imports in the national accounts). In other words, instead

competition among cloud providers intensifies, they seekof transferring the full amount of the reduction in

to locate their bases looking for low electricity rates. As acompensation of employees to domestic capital, theresult, the introduction of AI and robots will becorresponding amount is transferred to foreign cloud

accelerated.

providers via domestic capital.

However, if a cloud provider has a foreign origin, a22

Chapter 8: Changes in Consumer Behavior Forcing Major Changes to the Automobile Industry[Part 1] Chapter 8: Changes in Consumer Behavior Force Major Changes to
the Automobile Industry
1. Toyota's entry into the subscription market

Electric power not only nurtured the electric equipment

In the morning edition of the Nihon Keizai Shimbun

industry but also paved the way for mass production by

issued on February 6,2019, there was an interestingpromoting the automation of production processes. Oilarticle entitled "Toyota to Enter the Flat-Rate Service

nurtured the transportation equipment and petrochemicalMarket with Lexus." Here is the highlight of the article.

industries, and led the economies of the developed

On the fifth day of the month, Toyota Motor Corp.

countries

totheso-called

heavy

and

chemicalannounced the outline of a fixed price service for its

industrialization. Among the many new products createdluxury car “Lexus." The service starts in Tokyo on theby the Second Industrial Revolution, 2 kinds of products,

sixth day of the month, and will be expanded nationwide

home appliances and passenger cars, stand out in terms

from this summer onwards. With a monthly fee of 194,400of the fact that they drastically changed our daily life.

yen (including tax), customers can select a different car

Indeed, the exports of these 2 products had played a role

to ride from 6 models, including a new sport utility vehicle,

in driving Japan's economic growth since the late 1970s.

every 6 months for 3 years. The move is aimed atInformation and communications technology (ICT),

consumers who want to use cars at a low cost, includingwhich promoted the Third Industrial Revolution, improved

tax and insurance fees. Fixed price services are widely

the convenience and comfort of electric appliances andused for music and video, but it will be a touchstone if it

automobiles dramatically. Almost all of the manual,

becomes common in the car industry.

hydraulic, and belt-type mechanical parts of automobiles

Toyota has finally embarked on the car subscription

were replaced by electronics technology. Airbags and car

business as an adaptation to the growing trend of young

navigation systems, which are heavily used by all people,

people turning away from driving, changes in consumer

are none other than the outcomes of electronics

behavior that emphasizes "use" rather than "ownership,"technology. At the end of 1997, when the Kyoto

and the shrinking domestic new car market. The following

Conference where the Kyoto Protocol was adopted tomessage from the president is included in Toyota's

oblige the advanced countries to reduce CO2 emissions“Corporate Information.” "I decided to change thecame to an end, Toyota Launched the Prius hybridbusiness model of Toyota from a ‘car manufacturing

vehicle. The hybrid vehicle, which uses both an engine

company’ to a ‘mobility company.’ In other words, it will

and a motor to run, doubled its fuel efficiency, which

be a company that provides all the services related to themeans a significant‘mobility’ of people around the world.”

emissions. Smartphones came to play an essential role

Prior

to

the

FourthIndustrial

Revolution,

reduction in carbon dioxidethein everyday life as super-miniature Internet devices.

automobile industry, which has been described as more

Electronic component manufacturers became one of thethan a symbol of the twentieth century, is being forced tocornerstones of the Japanese economy by supplying

undergo “a once-in-a-century major change" in terms ofsmartphones and auto parts throughout the world.

both supply and demand. It is certain that such changes

There is a phrase called “industrial civilization of thewill be accelerated at once as the Fourth Industrial

twentieth century.” It means a civilization that has been

Revolution progresses. The signals can be found in theunder criticism since the rise of global environmental

launch of Toyota's subscription business and the

problems at the end of the twentieth century, with the aim

president's message.

of mass production, mass consumption, and massdisposal of industrial products. The model for mass

2. The automobile industry has been the driving force

production was the passenger car production system thatof economic growthbegan with the Model T Ford, which was launched in

From the end of the nineteenth century to the beginning

1908. Every family had a passenger car, not to mentionof the twentieth century, the Second Industrial Revolution

household appliances. Once they start to spread, thecompletely changed the way people lived in Westerndemonstration effect will work, putting them on track todeveloped countries. The second industrial revolution inmass production immediately. When mass production ofhistory was driven by 2 energy sources: electricity and oil.

industrial

23

products

becomescommonplace,large

Part 1: What is the Fourth Industrial Revolution?

numbers of jobs are created. Increased employment andFirst, in Japan, the cost of owning a car is much higher

higher wages stimulate demand for a variety of goods

than that in Western developed countries. First, theand services, resulting in smooth economic growth. Thisacquisition tax is imposed when one purchases a car. In

creates a “virtuous cycle.” This is the process ofaddition, the annual fixed expenses including loan

economic growth andWestern

repayment, holding tax, insurance premium, and cost ofdeveloped countries, Japan, South Korea, and China

development that

garage are not small. Other than those costs, carfollowed mainly through industrialization.

inspection fee should be paid every 2 years, and parking

The ratio of the number of automobile-related workers

fee and repair costs as necessary. Except for the caseto the total number of workers in Japan is 8.3%, and thewhere a private car is used for commuting, the utilization

actual number is 5,390,000 (the 18-year average). One

rate of cars is less than 10 percent in metropolitan areas.

engine automobile is made by assembling about 30,000

On the other hand, in provincial cities, where thecomponent parts. Steel, various nonferrous metals,

population density is low, private cars are indispensable

petrochemicals, textiles, and electronic components andfor daily commuting and shopping because there isdevices are used as raw materials for parts production.

almost no public transportation. The ratio of light cars to

As a result, industrial ripple effects of automobiles are

private cars as daily necessities is overwhelmingly high.

enormous. During the last quarter of the twentieth century,

Migration of young people to metropolitan areas reduces

two of the most fundamental drivers of Japan's economic

their ownership rate of cars.

growth were the electronic and automobile industries.

Second, obtaining a driver's license takes a long time

However, the trade surplus in the electronic industry

and costs a lot in Japan. As a result of this and due to thepeaked at just under 10,000,000,000,000 yen in 1992

declining birthrate, the number of people in their 20s withand then started to decline. In 2013, the trade deficit

driver's licenses is decreasing.

started finally (the deficit in products exceeded theThird, due to the spread of the Internet, young people

surplus in electronic components). Since then, Japan's

are looking at the screen of their smartphones anytime,

economic growth has run into an unstable unicycle

anywhere. Young people have come to avoid cars, which

structure based solely on automobiles.

need to be driven, and prefer public transportation (trains
and buses), which allow them to stay on their

3. "5 factors" for young people turning away fromsmartphones, when they go somewhere. In addition, one

drivingof the reasons people are turning away from driving isthat they don't have to go shopping because now theyAs I mentioned at the beginning, the automobile

can buy most things online.

industry is undergoing a wave of major changes. Signs ofFourth, as young people have become more aware ofchanges are seen in both supply and demand. Now let's

global environmental conservation, they refrain fromfocus only on demand-side changes.

using CO2-emitting private vehicles and prioritize the use

Soon after the beginning of the twenty-first century, aof public transportation.

trend of “young people turning away from driving”
became the talk of the country. This is not a phenomenon

Fifth, many young people pursue a "cool" lifestyle. The

peculiar to Japan, but a phenomenon that is more or lessnumber of young people who feel that driving a luxury car

common among developed countries. According tois "cool" has decreased significantly compared to the past.

various statistical surveys, young people (in their 20s) are

Such a shift in the values of young people also cannot be

far less interested in cars than before, and young people

overlooked as one of the reasons for the trend of turning

who purchase a car with a large loan of 2 to 3 million yen

away from driving.

are now becoming a minority. During the last quarter of
the twentieth century, cars were undoubtedly a "symbol

4. Consumers value "use" more than "ownership"of affluence," and owning a high-end private car at a

The change of the consumer behavior, whichyoung age was an epitome of what Thorstein Veblen

emphasizes "use" rather than "ownership" of things

described as “conspicuous consumption.” In fact,including not only automobile but also clothes, isautomobile sales volume has been on a gradualprogressing at present. Until about 1970, for example,

downward trend since peaking in 1990. Here are some ofeveryone believed that a watch was a “life-long thing,"

the reasons why young people are turning away fromwhich means they can use it for a lifetime. In fact, at thatdriving.

time, a spring watch was very expensive. At that time, no24

Chapter 8: Changes in Consumer Behavior Forcing Major Changes to the Automobile Industry

one expected that high-precision quartz watches, whichat the bottom at 0.46, followed by Osaka Prefecture,

lose or gain only 15 to 30 seconds a month, and atomic

Kanagawa Prefecture, and Kyoto Prefecture. In the end,

watches with perfect accuracy would be released at a low

residents

price. There might no longer be durable consumer goods

transportation have no choice but to own cars whether

that can be described as “life-long things" in both namethey like it or not. In addition, 2 cars are necessary, one

and reality. Technological progress, shortening cycle offor a husband to commute and one for a wife to go

the fashion, and lower prices have undermined the

shopping.

durability of consumers' durables.

ofprovincial

citieswithpoor

publicThe household penetration rate of automobiles (forAs already mentioned, the cost of owning a car is abouthouseholds with 2 or more members) peaked at 87% at

400,000 yen per year (in the case of a typical car). Now

the end of 2003. Since then, it gradually decreased andin metropolitan areas, very few workers commute by their

dropped to less than 80% at the end of 2018. The

own cars because it is difficult to arrive at their office inpenetration rate for single-person households is welltime due to traffic jams. The motive for owning a car is

below 50 percent. The contraction of the domestic

reduced accordingly. As the number of double-income

automobile market, which has become clear since 1990,

households has increased, the need to own a private car

is forcing all auto manufacturers to change their businessis virtually eliminated because they use online shopping

conditions. In his message, Toyota’s president describedto purchase voluminous goods and buy daily food on the

it clearly as the “model change from a car manufacturing

way home from work. A comparison of the number ofcompany to a mobility company.” It is none other than thevehicles per household by prefecture shows that Fukuichanges in consumer behavior that makes the model

Prefecture came in first at 1.75, followed by Toyamachange to a mobility company inevitable. Consumers

Prefecture, Yamagata Prefecture, Gunma Prefecture,

play the main role in the major transformation of theand Tochigi Prefecture. On the other hand, Tokyo ranked

automobile industry.

25

Part 1: What is the Fourth Industrial Revolution?

[Part 1] Chapter 9: The Real Meaning of Intense Competition for
Development of Self-Driving Cars
1. History of the movement of people and things

Although the number of imported cars from Ford and GM

As I mentioned in the previous chapter, the automobile

in the United States gradually increased, only a few very

industry is now facing a “period of once-in-a-century

wealthypeople

owned

their

private

cars.

Only

major change” or the first major change in its history.

government officials were allowed to use official cars andIn ancient times, consumers held sovereignty in the

only corporate executives to travel by company cars. It

market economy. Consumers “pick up" goods andwas in 1936 when Japan started domestic production ofservices that manufacturers create and distributors sell,cars. It was just a year before the outbreak of the Sino-

and manufacturers and distributors cannot survive

Japanese War and military truck was the main production.

without knowing how to "adapt" to consumer preferences.

The cost of passenger car production was so high that,

Manufacturers and service providers, who have a keen

judging from the income level at that time, masssense of what kind of goods and services consumers

production effect was hardly expected and it was notwant, have an advantage in market competition. Under

profitable. The popularization of passenger cars began

the consumer sovereignty, a company's technologicalmore than 10 years later, when the high economic growth

innovation is demand-pull. In other words, a company canperiod arrived after World War Two.

achieve the improvement of a product or the developmentof a new product by responding to implicit demands of

2. Evolution of internal combustion engines andconsumers.

energy conservation

Let's look back at the history of the movement of people

The axises of "progress" in the transport of people andand things. As people begin to live in groups, they need

goods were very specific, such as "faster," "moreto move and transport goods. Walking and running are

comfortable," "more convenient," and "larger in volume,"

the

and

and the path of progress was obvious to all. In the Firsttransportation. In any age, everyone has shared theIndustrial Revolution, steam locomotives, steamships,

desire to move and transport as fast as possible. In Japanand others brought about epoch-making advances in

until the Edo period, the legs of people and horses weretransportation. During the Second Industrial Revolution,

the only means of movement and transportation, and it isautomobiles

said

most

that

primitive

traditional

means

expressofmovement

messengers

andairplanes

poweredbyinternal

carriedcombustion engines fueled by gasoline, light diesel oil,documents between Edo and Kyoto in about 70 hours. It

and jet fuel brought about revolutionary advances in

was an amazing service to deliver a document or lettertransportation. During the Third Industrial Revolution,from Edo to Kyoto in just 3 days. The fee for the express

transportation equipment became a mass of electronics,

messenger service must have been very high. People

and progress was made in saving energy for internal

had to rely on horses to transport goods too heavy to be

combustion engines innovatively and improving thecarried by humans. Horses were also used for movement

speed of trains. The energy conservation of internalof humans. A palanquin carried by 2 palanquin carriers

combustion engines was a result of the surge in crude oil

played the role of what is now called an official vehicle forprices due to the oil shock in 1973 and the adaptation tosamurai and court nobles, and a taxi for common people.

the United Nations Framework Convention on Climate

Shortly after entering the Meiji period, chair-palanquins

Change, which was adopted at the United Nations

appeared for foreigners, but later they were replaced byConference on Environment and Development held in

jinrikisha. It was not until the Edo period that carts began

Rio de Janeiro in June 1992 and entered into force into be used to transport goods. Transportation by cart,

March 1994. As represented by Toyota's hybrid cars,such as large hand‐drawn cart, depended on humanJapaneselabor. In the Meiji period, carts were also replaced bygenerally recognized as one of the world's top runners inbicycle trailers. Needless to say, bicycle trailers driven bytechnological innovation for energy conservation.

automobile

manufacturers

have

been

tires are superior to large hand‐drawn carts driven bywooden wheels.

3. From a car manufacturer to a mobility company

It was in January 1898 when cars imported fromAs described in the previous chapter, young people’s

France ran for the first time on the streets of Japan.

26

Chapter 9: The Real Meaning of Intense Competition for Development of Self-Driving Cars

trend of turning away from driving and the shift inadvantages such as improved safety, comfortable driving,

consumers' preferences from car ownership (private use)

driving management, and advanced car navigation

to car use (enjoyment of services) as a means of mobility

systems. As I have repeatedly stated, (3) is nothing but

are underway in many developed countries. One of thethe adaptation of car manufacturers to changes inmeasures to adapt to such environmental changes is theconsumer preferences that emphasize usage rather thanchange in business conditions from a car manufacturer toownership. (4) not only contributes to the reduction ofa mobility company. As I quoted the remarks of theCO2 emissions and economic cost associated withpresident of Toyota in the previous chapter, similar

driving, but also leads directly to the simplification of

messages were delivered by the heads of world's major

automated driving.

automakers. A term describing such circumstances,(2), the centerpiece of the major changes, has not been

MaaS (Mobility as a Service), seems to have beenachieved at least at this point. The US National Highway

generally recognized to some extent.

Safety Administration defines the level of automatedCar manufacturers are not companies that assemble

driving as follows: Level 0: Driver always performs all

and sell goods, or automobiles, but are companies that

operations. Level 1 (Driving Assistance): The systemprovide mobility services. In other words, buying a car is

supports any one of acceleration, steering, or braking.

not about owning it, but about enjoying mobility services

Level 2 (Partially Automated Driving): Sensors, radars,"anytime, anywhere, and as much as you want” at yourand cameras observe the driving environment, and theown expenses. Even in the case of household appliances,

system performs at the same time two or more of theyou own them in order to enjoy the services provided byoperations: acceleration, steering, and braking. Level 3

the products. Owning them itself is not your purpose.

(Conditional Automated Driving): The system performs all

When the Japanese economy was in a period of rapidof acceleration, steering, and braking, i.e., automatedgrowth and automobiles became popular, there were two

driving, only in certain circumstances or traffic conditions,purposes for owning an automobile. One, of course, isand asks the driver to drive in other situations. Level 4

the enjoyment of mobility services. The other is to own a(Advanced Automated Driving): The system performs

luxury car and show off one’s wealth to others. During thefully automated driving (the driver doesn’t have to do

bubble economy in the late 1980s, luxury foreign cars

anything) only on expressways (or when the weather issuch

Jaguarnormal), for example. But it asks the driver to drive whendemonstrated the showing-off effect, which was worthasMercedes-Benz,

BMW,

and

the car runs on public roads (or when the weather

paying a lot of money for, to the fullest extent. Luxury carschanges). Level 5 (Fully-Automated Driving): The driverare more or less superior in terms of “use” because they

doesn’t have to be on board and the car is automaticallyoffer more safety, taking advantage of their comfortable

driven.

ride and high accelerating power. But those who buy a

At this point, all automakers are selling cars of up to

car with poor fuel efficiency expect it to demonstrate thelevel 2, but it is more appropriate to describe them as cars

showing-off effect to display their wealth.

with driving assistance systems rather than self-drivingcars because the driver cannot let go of the steering
wheel and must always be prepared to step on the brake

4. Technology-push innovation
Zetscheand the accelerator. Japan's Road Traffic Law allows

demonstrated the company’s CASE strategy at Paris

vehicles of up to level 2 to run on public roads. At present,

Salon, one of the world's 4 major motor shows. CASE, ahowever, the Road Traffic Law bans self-driving cars ofcoined word by Daimler, is an acronym for the following 4

level 3 or higher from running on public roads. It iswords: (1) Connected (access to information network

understandable that cars of up to level 2 are within theservices by connecting to the cloud), (2) Autonomous

scope of the existing Road Traffic Law, as humans are in(automated driving), (3) Shared & Service (sharing andcharge of driving. When it comes to those of level 3 orservices), and (4) Electric (electrification).

higher, revision of the Road Traffic Law and fundamental

In

June

2016,

Daimler's CEO Dieter

Certainly, these 4 points beautifully summarize thereform of automobile insurance are required to prepare

implications of the major changes in the auto industry

for the practical application because the initiative of

from the viewpoint of the supply side. As for (1), being

driving shifts to the system.

connected is essential to achieving automated driving

I mentioned earlier that most innovation is demand-pull,

and providing car sharing services, in addition to thebut I can't help thinking that self-driving cars are27

Part 1: What is the Fourth Industrial Revolution?

technology push. The only people who want to privately

Google and other companies seem to aim to dominate

own a self-driving car are the elderly and the disabled,

basic software for self-driving cars.

who are at high risk of driving. Most healthy people must

In the past few years, automakers have been investing

prefer to drive holding the handle and stepping on thein the development of self-driving cars and working withacceleration and brake freely. The initial catalyst came inother businesses in the same industry and IT companies

the twenty-first century when the artificial intelligenceto prevent the move. In that sense, the development ofboom began, and Google and other IT companies

self-driving cars is not a demand-pull model, but a classic

embarked on developing software for automated driving

example of technology-push innovation. At the same time,

as one of the applications. Just as Microsoft’s Windows

there must be a fierce war of aggression between

and Google’s Android have strong control over basic

different industries, in which IT companies are trying tosoftware for PCs and for smartphones respectively,

exercise control over the automobile industry.

28

Chapter 10: The Zero Marginal Cost Zero Society Brought about by the Rise of the Internet[Part 1] Chapter 10: Zero Marginal Cost Society Brought by the Rise of
the Internet
1. The emergence of hybrid subscription services

use of the advantage brought by the Internet, zero

“Diamond Weekly” issued on February 2, 2019,

marginal cost of communications. Not only in the case offeatured an interesting topic entitled “Subscription

Panasonic, but also in other cases, it is very doubtful

Revolution.” Let's use 2 examples from this special article

whether subscription businesses for things can be a

to see what the Zero Marginal Cost Society (which issustainable business model or not.

explained later) really is.
"Sony expects to achieve a consolidated operating

2. Internet brought a zero marginal costprofit of 870,000,000,000 yen in fiscal 2018, the highest

Goods and services traded in the market are priced.

level since its establishment. The key to the success was

Positive prices motivate manufacturers to produce goods,"hybrid subscription" services, which continue to growmakingrapidly in the game market." It says that a subsidiary

introductory text of microeconomics says as follows:

engaged in gaming business, which seems to be far from

Making goods requires costs. Under the assumption of

the mainstream of the electronic manufacturer Sonyperfect competition, there are innumerable companies

Corp., raked in an operating profit of 310,000,000,000

that produce the same thing, and for each company, theyen. The Sony subsidiary launched the PlayStation

price of a product is nothing less than a figure defined byconsole in 1994. Since then, it has updated the modelthe “god” named the market without clarifying the basis.

service-sellingbusinesses

profitable.

An

several times. In 2010, it began offering a flat-rate all-you-

A producer who sells goods in a perfectly competitive

can-play service “PS Plus” for the latest PS4. If you pay

market is not a price maker, but a price taker, and476 yen (excluding tax) per month, you can enjoy online

increases production until the marginal cost (the cost ofmultiplayer game with other users via the Internet. You

producing one more unit of a product) equals a given

can also play about 10 new game titles distributed every

price. In general, the marginal cost is assumed tomonth, anytime, anywhere, and as much as you want. It

increase gradually. If the marginal cost is less than the

now has about 35,000,000 members worldwide. As theprice, the difference is an additional profit of a unit of thenumber of members increases, regular and continuous

product. Therefore, it gives an incentive to rational

revenue from membership fees increases proportionally.

companies aiming to maximize profits to increase

The cost of developing a new game title is fixed andproduction. In contrast, if the marginal cost exceeds theindependent of the number of members. Since gameprice, the difference is an additional loss. Therefore,

titles are distributed on the Internet, there is norational companies stop production when the marginalcommunication cost. This is the important point.

cost equals the price.

Panasonic launched a subscription business for

American critic of civilization Jeremy Rifkin's "The Zeroconsumer electronics in February 2018, but it says that

Marginal Cost Society” (originally published in 2014 andthe results are not always good. For example, a TV

translated version in Japanese by Yasushi Shibata wassubscription (which means a flat-rate service forpublished in 2015 by NHK Publishing) pointed out thatnewspaper or magazine in English) is as follows: If you

the Internet of Things (IoT) minimizes marginal costs andpay 7,500 yen a month, your TV will be replaced with theundermines the adjustability of the market mechanism (tolatest model every 3 or 5 years. This type of subscription

fluctuate prices to balance supply and demand). For

business has the following drawbacks: In effect, it isexample, when sending and receiving e-mail messages,

similar to installment payments, forcing customers to buy

there is no cost other than a very small electricity charge.

new products of only Panasonic every 3 or 5 years. Since

The cost, or marginal cost, of sending a single e-mail isthe performance of a TV cannot deteriorate in 3 years, it

almost 0. The marginal cost of sending a standard snail

is almost needless to replace a TV every 3 years. In

mail (letter) weighing 25 grams or less to Japan byaddition, is there any expectation that Panasonic can

express is 262 yen. Because the cost of sending an e-wipe out a large amount of stock of used TV, which it will

mail message is almost 0 and it can be sent to every

have to hold?

corner of the globe in real time, it is unlikely that snail mailThe success of Sony’s PS Plus is due to its ingenious(letter) service will win. However, I have to notice that a29

Part 1: What is the Fourth Industrial Revolution?

document requiring a signature and seal can be sent only

are changing now. Mass merchandisers, which werein the form of snail mail and it is more desirable that lettersbelieved to be “the strong” that wiped out “the weak,”of thanks are written in one's own hand with an ink brush

shopping avenues, are the prey of online shopping

or a brush pen.

businesses. To describe in an extreme manner, they are

In fact, the number of postal items such as letters andat the risk of ending up as exhibition halls rather thanpostcards dropped sharply from 26,200,000,000 in fiscal

sales floors. In short, it can be said that online shopping

2001 to 17,200,000,000 in fiscal 2017. It is said that theis the leader of the third “distribution revolution” thatmain reasons for this are the webification of various bills,

benefits both sellers and buyers. Since fiscal 2013, thethe reduction of communication and promotion costs innumber of Internet users has leveled off at around 83%

companies, and the decrease in communication betweenof the population. Now, more than half of online shoppers

individuals through letters (including New Year's cards).

use smartphones instead of PCs as their devices. The

With the advent of the communication method, e-mail,implementation

there is almost no need to spend time, energy, andgovernment is aggressively promoting, will further

money sending paper letters. In the future, the postal

increase the dependence on online shopping.

of

cashless

systems,

which

the

industry will have to shift its focus from snail mail service(letters) to distribution (transportation of goods).

4. Distribution revolution in software
When it comes to software for e-books, game titles,

3. Rise of online shopping
Accordingto“Marketmusic, and video, the distribution revolution is even more
ResearchonElectronic

serious. For example, once a book is digitized, theCommerce” (Commerce and Information Researchmarginal cost of selling one e-book is 0. In August 2016,

Bureau of the Ministry of Economy, Trade and Industry,

Amazon launched an all-you-can-read subscription

April 2018), the market size of mail order sales via theservice, Kindle Unlimited, which costs 980 yen (includingInternet is steadily expanding at an annual rate of justtax) per month. You can read all you want from a selection

less than 10 percent. The size of the online shoppingof more than 120,000 Japanese books and more thanmarket reached 16,504,500,000,000 yen in fiscal 2017,

1,200,000 foreign books. Of course, as the number ofaccounting for 5.79 percent of household consumption

members increases, regular income increases. However,expenditures. In the United Kingdom, China, and theincremental cost per additional membership is 0. What’s

United States, online shopping accounts for more thanmore, the key is that it imposes a limit of 10 downloads

10% of consumer spending, while in Japan it remains

per month. It is because books that are interesting to read

relatively low. For consumers, attractive points of online

and likely to be useful are almost certainly going to be

shopping are that it is relatively cheap, that goods can be

downloaded for a fee, or paper-based versions are likely

delivered to a specified address in a short time, that the

to be purchased. In other words, launching an all-you-cost of payment (by credit card) is 0, and that menus of

can-read subscription service is likely to lead to increases

goods are well arranged with informative customer

in the number of paid downloads of e-books and thereviews. For sellers, it is convenient because they do notnumber of sales of paper-based books.

need to have a store and can save a lot of rent and labor

There is also a wide range of services (more than 10

costs. In addition, they can solicit orders for hot-sellingcompanies) that allow you to read more than 200

products based on the purchase history of theirmagazines (most of them are weekly magazines) for as

customers. In the case of a business model like Rakuten

little as 500 yen per month. As of the end of fiscal 2016,

Shopping Mall, where millions of retailers have opened

d-Magazine, the largest service in the industry, had

their virtual stores, they do not need to keep stock at all.

3,250,000 members (e-Book Business Survey 2016).

We cannot deny that the market size of the online

Assuming a membership fee of 400 yen per month,

shopping for products other than perishable foods will

annual sales amount to 15,600,000,000 yen. The total

more and more increase in the future. After the Large-

sales of more than 10 companies providing all-you-can-Scale Retail Stores Control Law was abolished in 1998,

read subscription services is expected to exceed

most of the urban shopping avenues became deserted,

40,000,000,000 yen in fiscal 2018 (the same as above).

and the retail market rapidly changed, with supermarkets

In order to motivate the offering of all-you-can-readfor daily necessities, mass retailers for electric appliances,magazine subscription services, some measures mightand convenience stores for small shopping. But things

have been taken such as adjusting the amount of money

30

Chapter 10: The Zero Marginal Cost Zero Society Brought about by the Rise of the Internet

allocated to magazine publishers in proportional to the

copies based on statistics, but considering that the

number of views. However, the total amount of money

decline has been more severe in magazines than other

distributed to publishers will only around 10 percent of the

publications since 2010, it can be said that the impact ofrevenue from d-Magazine. The cost of digitizing 200

all-you-can-read subscription services on the decrease inmagazines is not so expensive, and the marginal cost of

the number of copies is not negligible. But in the nearaccess by members to magazines is 0. Therefore, d-future, I think it's very likely that the amount of money

Magazine can secure stable profits as long as the number

distributed by companies providing all-you-can-readof members does not decrease.

services will well make up for the decline in sales of

While it is well known that sales of publications are

paper-based magazines. Magazine publishers specialize

generally declining, the decline in magazine sales isin content creation, and readers enjoy the contents

particularly pronounced. Sales fell from 869,400,000,000

through all-you-can-read subscription services. I hope

yen in 2007 to 499,700,000,000 yen in 2017. There is nothat in the Zero Marginal Cost Society, magazines willway

leave the world of paper and bloom in the world of thetoestimatetheimpactofall-you-can-read

subscription services on the decrease in the number ofInternet.

31

Part 1: What is the Fourth Industrial Revolution?

[Part 1] Chapter 11: Strategic Cuts in Electricity Rates Determine Japan's Fate
1. The Fourth Industrial Revolution consumes a lot of

low electricity rates. An international comparison (byelectricity

DECC, 2017) of electricity rates (industrial without tax) in

The central player of the Fourth Industrial Revolution is

27 developed countries shows that Japan is the highest

AI with deep learning capabilities, but in fact, AI itself is

at $15.19 per 100 kWh and Norway is the lowest at $3.64

located at a data center far from the field. In other words,

per 100 kWh. Norway is rich in hydropower resources,

it is at a facility dedicated to accommodating andand 95% of its electricity is generated by hydropower andoperating tens or thousands of computers, servers, and

4% by wind power. Norway is a major renewable energy

large numbers of communication lines. In the field, whatpower. AI data centers will be concentrated in Northwest

is needed is only a device to communicate with servers

European countries and North America, where electricity

at the data center.

rates are low, due to the development of communication

Of course, a huge supercomputer is not brought into

at higher speed with lower latency and multiple

the field when AlphaGo plays against a human player.

simultaneous connections.

There is only one personal computer as a device near the

One of the reasons for the high electricity rates inboard. AlphaGo’s server, which stands ready at the data

Japan is that thermal and nuclear power accounts forcenter, finds the next move. Necessary information is85% of the generated electricity. In other words, the ratio

exchanged instantaneously through the Internet. It is theof renewable energy is low. Until around 1955, it had

so-called cloud computing.

been said that hydroelectric power was primary andRegardless of whether it is a self-driving car or Watson

thermal power was secondary and in fact, hydroelectricfor cancer diagnosis and treatment, a supercomputer isn't

power accounted for 90% of the generated electricity.

needed on-site, and necessary data is sent and received

However,through the device, PC, connected to a data center server

appliances and the progress of industrialization, thevia the Internet. In the case of a full self-driving car, thedemand for electricity increased gradually at an annual

data collected by the sensors, radars and cameras

rate of around 5%, and coal-fired and oil-fired thermal

installed in the car is sent in real time to a server in a data

power plants were constructed one after another, whichcenter, where the server plays the role of a professional-

led to a sudden shift to a situation where thermal power

level driver, such as braking or changing lanes.

was primary and hydroelectric power was secondary.

withthe spread ofhouseholdelectric

Driving a full self-driving car for a month consumes

After the oil crisis in 1973, nuclear power was regarded

almost the same amount of electricity as a typicalas the core electricity source, which would play the mainhousehold uses per month. The electric power isrole in electricity supply, and there was a continuous rush

consumed at the data center. One of the selling points ofof construction of new nuclear power plants. In the year

5G high-speed mobile communication is the low latency.

before the accident at the Fukushima Daiichi Nuclear

If a camera in the car detects a person crossing in front

Power Plant, the share of nuclear power was close toof the car, the information is transmitted to the server in30%.

real time, and the brakes are applied immediately. The
time lag is about 1 millisecond.

2. New basic energy plan

When you drive a full self-driving car for an hour, theThe “Fifth Basic Energy Plan" adopted by the Cabinet

server must receive the information that the car sends

on July 3, 2018, contains the following description. "Weand issue appropriate instructions to prevent accidents

will lay the groundwork to make renewable energy theand delays without cessation. It's no surprise that it

main power source, aiming to achieve the energy mix for

consumes a lot of electric power. Another selling point of2030 (set by the fourth basic plan).” It is not clear what

5G is multiple simultaneous connections. It can connect

the phrase “make it the main power source" means, but

tosquarethe numerical target was reconfirmed and it was clarified

kilometer. It seems that there is no need to worry about

1,000,000

devicessimultaneously

perthat "renewable energy would account for 22 to 24% of

the congestion in the servers dedicated to automatedthe generated electricity.”

driving. It is certain that the Fourth Industrial Revolution

The renewable energy ratio in 2018 was 17.4%

will dramatically increase electricity consumption.

(source: an estimation by ISEP based on electricity

One of the conditions of location of the data center issurvey statistics, etc.), and it indicates that the32

Chapter 11 Strategic Cuts in Electricity Rate Determine Japan's Fateachievement of the above target is within the range ofin 2018 (including 2.6% for hydropower). The difference

possibility. However, it is important to note that large-

between the fixed price and the electricity rates, as ascale hydropower accounts for nearly half, or 7.8%, of theresult of the introduction of the feed-in-tariff system, istotal. When it comes to only new energies, those with themainly added to the household electricity charges,

highest percentages are solar power at 6.5%, biomass at

instead of being borne by electric power companies or

2.2%, wind power at 0.7%, and geothermal power 0.2%.

the government. The surcharge accounts for 23% of

The basic plan begins with a statement as follows.

householdelectricity

charges(2018).

Household"There are things to consider whenever planning energy

electricity charges, including value-added taxes andchoices. First, we should make efforts, taking theenvironmental taxes, have been around 29 Euro cents

experiences, reflections, and lessons of the Fukushima

since 2013, while raw household electricity charges

Daiichi Nuclear Power Plant accident into consideration.

(costs of generating, transmitting, distributing, and selling

Second, the principle of our energy choices has been theelectricity), excluding taxes and surcharges, have beenenergy independence consistently since the end of thearound 13.5 Euro cents. At least, as far as Germany's

war. Third, we should follow the global trend toward

experience suggests, it is unlikely that the cost necessary

decarbonization following the entry into force of the Paristo adjust the load associated with the introduction of aAgreement.” Nevertheless, the basic plan does notlarge quantity of renewable energy, which lacks supply

deviate from the established policy, which places nuclear

stability, will significantly lead to an increase in electricity

power as an "important baseload power source," saying

rates, even if the renewable energy mix will be increased

that nuclear power accounts for 20 to 22% of the amountto nearly 40%.

of electricity generated.”
The Third Basic Energy Plan, which was announced in

3. Importance of using renewable energy as the main

the year before the accident at the Fukushima Nuclear

power source

Power Plant (2010), set a target that nuclear power,

Let's go ahead with the story. All energy sources

which is semi-domestic energy, would account for 53% ofincluding thermal, nuclear, and renewable energy power

the total electricity generated in fiscal 2030 as a trump

require a large amount of construction cost as initialcard for stable power supply and decarbonization. To thatinvestment. By comparison among power sources, theextent, Japan’s energy policy has been promoted on themarginal cost, which means the cost of generating 1 kWhpremise that “nuclear power could overwhelm otherof additional electricity, is the highest for thermal power,

power sources in the light of its low per unit electricity costwhich burns fossil fuels (coal, natural gas, and oil). In theand stable supply.”case of nuclear power using enriched uranium as a heat

In the basic plan, the only positive reason for placing

source, the marginal cost is 1 to 2 yen (most of which isrenewable energy as the main power source is that “wenuclear fuel cycle costs). In the case of renewable energy,

should follow the global trend toward decarbonization.”

the marginal cost is 0. Once solar panels or windmills are

The basic plan points out the difficulties of introducing a

installed, the free natural energy, such as solar and windlarge quantity of renewable energy, saying that since thepower, can be converted into electricity without human

output is unstable depending on the weather, support byintervention.

auxiliary power sources such as thermal power and water

As far as the construction cost is concerned, thermal

pumping is indispensable and complete decarbonization

power plants are relatively inexpensive. Before thecannot be expected, and adding that the additional cost

accident at the Fukushima Dai-ichi nuclear power plant

for load adjustment cannot be ignored.

on March 11, 2011, the construction cost of a nuclear

Assuming a large-scale and centralized energy

power plant with an output of 1,200,000 kW wastransmission and distribution system, it is true that if theestimated at about 500,000,000,000 yen. However, as

share of renewable energy exceeds 20%, it will take time

the Nuclear Regulation Authority was newly establishedand effort to adjust the load. Let us estimate the cost ofand safety standards were strengthened after the

adjusting the load based on the changes in electricity

accident, the above construction cost soared to more

rates in Germany, an advanced country in terms ofthanrenewable energy.

countries, which strengthened their safety standards

1,500,000,000,000

yen.

Even

in

developed

Germany, which aims to increase the share offollowing Japan, the estimated cost of constructing arenewable energy to 80% in 2050, achieved a 37% share

nuclear power plant was doubled or tripled. All planned

33

Part 1: What is the Fourth Industrial Revolution?

exports of Japan’s nuclear power plants to the United

emissions, but also due to the fact that the marginal cost

Kingdom and Turkey have remained frozen.

of renewable energy is 0. In addition, it is also because

The reason why the resumption of the existing nuclear

its growth will lead to a gradual decrease in the initial

power plants is attractive to electric power companies isinvestment cost, and per unit electricity cost of renewablethat they can generate a large amount of electricity at aenergy, including depreciation costs of equipment, will fallmarginal cost of just more than 1 yen per kWh and sell it

below that of thermal and nuclear power.

at an average of just more than 20 yen. After all, because

Considering the decline in electricity demand due to theconstruction costs are sunk costs, or costs that havedecline in the population, the steep rise in the cost of

already been spent and can't be recovered in any event,constructing nuclear power plants, the fact that Japan iswillingly suspending the operation of nuclear power

an importer of fossil fuels, and the need for lower carbon

plants is an unthinkable choice for electricity companies.

power, it is inevitable that Japan will have to make serious

In the case of coal-fired power generation, whose per unit

efforts to use renewable energy as its main power source

electricity cost is the lowest as compared to other forms

in order to achieve lower electricity rates, which are aof thermal power, the marginal cost of power generationnecessary condition for locating data centers in theis almost equal to the cost of coal required for generating

country. If most of the AI data centers are located1 kWh of electricity, 5.5 yen. Certainly, as long as weoverseas, Japan will be a massive importer of computerignore the sunk cost, the marginal cost of nuclear power

services, and the Fourth Industrial Revolution will

generation is especially cheap.

certainly bring about a further decline in the JapaneseEuropean countries other than Norway and Iceland,

economy.

which are blessed with abundant hydropower resources,

I'll repeat that. While the Fourth Industrial Revolution

were originally highly dependent on thermal and nuclear

will undoubtedly improve productivity, it makes no sense

power, but are now gradually increasing the ratio ofthat more than half of the added value will go to overseas

renewable energy, mainly solar and wind power, in thedata centers. Under the Fourth Industrial Revolution,energy mix. This is not necessarily only due to the movewhat determines whether Japan will be a winner or not

to abandon nuclear power and promote lower carbon

must be a strategic reduction in electricity rates.

34

Chapter 12: What is the MOOC that Will Revolutionize University Education?

[Part 1] Chapter 12: What Is the MOOC that Revolutionize College Education?
1. Merits and demerits of PowerPoint in college

Generally speaking, few Japanese college teachers

educationdeserve to be called "masters of class." One of the

The Fourth Industrial Revolution is expected to have areasons is that there is no system like teaching assistants

serious impact on the state of college education. Before

and almost no opportunity to learn teaching techniques ingoing to the main topic, let's begin with the Third Industrial

graduate schools. In addition, many students are

Revolution, which changed the landscape of college

reluctant to speak in classes, making it difficult toclasses. Instead of blackboards, white screens to display

establish an interactive class like Harvard University

PowerPoint (PPT) slides have started to be installed on

Professor Sandel’s political philosophy lectures. Boredwalls behind teachers.

students are dozing off, chatting with friends next to them,

PPT, a presentation software for Microsoft’s Windows

and fiddling with their smartphones. Regardless of

3.0, was installed on laptops in 1990. Since then, PPT

whether it is because teachers are not good at teachinghas become an essential software for lectures andor because students are not willing to study, in general,presentations at academic conferences, and has often

classes at Japanese colleges are far from exciting.

been used in college classes. PPT is a very useful tool

In the late 1990s, PPT became popular in college

for showing pictures, videos, graphs, and diagrams toclasses. The whole contents of a lesson are covered inaudience or students. However, when it comes to using it

20 to 30 slides, and their copies are distributed toin college classes, the following difficulties cannot be

students in the classroom. PPT class has the following

overlooked.

drawbacks (or advantages?): First, it prevents teachers’

From the Meiji era to the end of the twentieth century,lack of ability to express things in words (especially when

it was common for students to add what a teacher haveJapanese teachers teach in English) from interfering withwritten or drawn with chalk on a blackboard to theirstudents’ understanding. Second, students don't have to

notebooks, such as the main points of the lecture,

take notes. Third, students spend more than half of theirtechnical terms, mathematical proofs, and diagrams, andtime in class reading copies of slides rather than listening

write down summary of the lecture in their notebooks

toduring a college class.

concentration. Fourth, in PTT slides, the summary of ateachers,

whichcertainly

reduces

students’

Most graduate students in the United States serve aslecture is often written in a bullet list in addition to charts.

teaching assistants while they are in school. This is not

However, it is difficult to understand the logical context

just to make up for the cost of living, but also to receive

just by reading a copy of PTT slides. In addition, since

training on how to give lessons in front of students as athere is no need to take notes, the contents of a class areprofessional teacher. The ability to teach exciting lessons

hard to remember. Fifth, what stands out is the level ofthat are easy to understand and do not make students

teachers’ techniques to create PPT slides, instead of thebored is a prerequisite for becoming a full-fledged college

original excellence of contents and techniques forteacher after obtaining a doctorate. One of the decisiveclasses.

factors is the technique of writing on a blackboard. As far

As listed above, PPT has both merits and demerits.

as I have experienced, you should divide a wide

There is a psychological theory that “listening” while

blackboard into 3 equal parts with chalk to write things“seeing,”

excellently from the audience's left to right. In classes

simultaneously, could be an obstacle to understanding.

where expansion of formulas is featured frequently, theApple's Steve Jobs banned the use of PPT in internal

speed at which a teacher writes things on a blackboard

meetings and conferences, and Amazon founder Jeffand students add them to their notebooks is almost equalBezos also prohibited presenters from using PPT andto the speed at which students with standard academicordered employees to prepare summaries written inskills understand these things. Students who attend an

sentences in 1 or 6 A4 size papers. It is not only because

hour or an hour and half of class can understand theit cannot deepen on-site discussions, but also because

contents of the lecture almost completely. They can visit

you cannot get the point when you read a copy of slides

the teacher’s laboratory at office hours to ask about

again later (Masayuki Sato “Amazon’s Greatest Rules”

points that they could not understand.

2018, Takarajima).

35

in

other

words, using

ears

and

eyes

Part 1: What is the Fourth Industrial Revolution?

There is nothing more comfortable for teachers thanafter every lecture and complete midterm and final exams.

finishing a college class by only reading PPT slides. It

Nearly 15% of the 160,000 participants, or 23,000 people,

must be the essence of the "master of class" to makecompleted the course. The lectures can be offered forstudents understand only by writing things on a board andfree because the marginal cost of attending online

giving lectures (oral explanation). On the other hand,classes is 0. Surprised by the figure of 160,000 people,

students don’t have to concentrate on listening to lectures

Thrun founded Udacity, an online college specializing inbecause they no longer need to take notes. Therefore,

computer science and related fields. The aim of Udacity

they focus on (?) reading copies of PPT slides while

was to provide free education of the highest standards toabsently shrugging off what teachers say. That is why thethe poor living in developing countries far from advanced

Third Industrial Revolution provided the revolutionary

science. Following Udacity, a series of online colleges"sacred treasure," making it easier for both teachers andhave opened. No credits can be earned, but those who

students to give and receive classes without using theircomplete the course can receive a diploma (Jeremybrains, or hands to write things on a blackboard and to

Rifkin "The Zero Marginal Cost Society").

add them to a notebook.

One of the attractions of online colleges is that you canWhile PPT certainly eased the works of teachers andwatch lectures on your laptop whenever and wherever

students, it required them to pay an enormous cost. First,

you want, according to your convenience. If you find it

students lack an understanding of the contents of lecturesdifficult to understand or listen, you can stop it at thatand it becomes more difficult to remember them. Second,

point and listen again. Textbooks and handouts can beclasses using PPT prevent students from honing what the

distributed and downloaded online. There is also a

MEXT calls “true academic abilities,” those to think, judge,

discussion forum where you can ask teachers questions

and express. Third, teachers tend to focus only on

and communicate with other students.

making their PPT slides look better, putting off creating

The most well-known online college of the lot is edX,

original and ingenious contents for their lectures. Fourth,which Massachusetts Institute of Technology (MIT) andstudents lost the training opportunity to take notes while

Harvard University worked together to establish in 2012.

listening to what teachers say during lectures. When they

The number of registered students in the first year waswork in a company or government agency as an office155,000. Since then, more than 30 prestigious colleges

worker after graduating from college, one of the mostaround the world have taken part in edX, and leading

important skills required is the ability to add the mainteachers of each school have been in charge of thepoints of a discussion or meeting to their notebook or

lectures. Kyoto University, Tokyo University, and Osakamemo pad.

University are also participating from Japan.

In short, the sacred treasure brought by the Third

Of course, English is the only language used in the

Industrial Revolution, PPT, caused a deterioration in the

online colleges. Therefore, the number of registeredability of college teachers to give lectures and the ability

Japanese students is still small. In the fall semester ofof students to listen to lectures, resulting in a significant

2012, a 15-year-old boy living in Ulaanbaatar, Mongolia,

deterioration in the quality of college education. Because

attended “Electronic Circuits,” a course given by MIT for

everyone wants to choose an easier way, college classes

second graders at edX. He became one of the 340 out ofare now full of PPT slides.

150,000 students who received full marks in short tests
and midterm and final exams. The boy entered MIT in

2. Possibility of an online college education, MOOC

September 2013 on favorable terms, including tuition

The MOOC (Massive Open Online Course) is a good

exemption and scholarships, and his future is promising.

example of the college education revolution brought

At first, it was said that the establishment of online

about by the Fourth Industrial Revolution. Google Vicecolleges would threaten the existence of existing colleges.

President Sebastian Thrun, who leads the research and

But even in the United States, the country of freedom,development of self-driving cars, offered “free” online

there seems to be a lot of difficulties for online colleges in

lectures on artificial intelligence in 2011, when he wasgiving credits to their students and allowing those who

also a professor at Stanford University. It served as anhave earned enough credits to graduate. For now, theopportunity for MOOC to put its enormous power on the

only thing they can do is issue diplomats of each subject.

world map. As soon as the lectures started, 160,000
students registered. They are required to take short tests

36Chapter 12: What is the MOOC that Will Revolutionize University Education?

3. Introduction of MOOCs into liberal arts education

discuss the contents of classes, textbooks, andFinally, I would like to propose a way to utilize MOOCs

supplementary books. A “master of class" is carefully

to reform Japanese college education. First, several

selected from among the 10 teachers, and students of thecolleges form online education consortia. Lectures on the

9 colleges attend an hour of MOOC class given by him or

so-called liberal arts subjects, philosophy, psychology,

her. Teachers of each college supplement the class andeconomics, politics, and international relations can be

answer questions from students in the remaining 30

found in the syllabus of any college. Many colleges leaveminutes. If there are 2 generally recognized “masters,"

most of their liberal arts classes to part-time teachers

they should be in charge of the MOOC every other year.

even though it has been claimed that liberal arts

Computer science and data science are also subjects

education is needed. Then I would like to propose thesuitable for MOOCs. The creation of the online education

following measures.

consortium gives all students in the participating colleges

Let us suppose that 10 colleges form a consortium.

the opportunity to take as high as possible level of

Taking philosophy as an example, philosophy teachers ofprestigious courses for liberal arts subjects.

the 10 colleges hold a number of meetings in advance to37Part1: What is the Fourth Industrial Revolution?

[Part 1] Chapter 13: Japanese Institutions and Practices Hinder the Path tothe Fourth Industrial Revolution
1. Job cuts at mega-banks

2. "Labor glut” is looming around the corner

What is often talked about these days is that the 3

On the other hand, non-manufacturing companies

mega-banks have embarked on drastic cuts in jobs andother than banks and manufacturing companies havetheir domestic branches. By the end of fiscal 2023, MUFG

hired more new graduates since 2015. Although

Bank will reduce its workforce by about 6,000 and its

companies looking for personnel are aware of securing IT

stores by 180. By the end of fiscal 2019, Sumitomo Mitsui

human resources, they have not taken into consideration

Banking Corp. will cut its workforce by nearly 4,000 andthe fact that they will see an excess of employment

shift 430 branches to the next-generation ones that will

sooner or later as the Fourth Industrial Revolution, in

be improved in efficiency by digital technologies. Mizuho

which AI with deep learning capabilities will replace many

Bank will cut 19,000 jobs in the whole group by fiscalroutine tasks, will promote the rapid development of2026 and consolidate 130 branches by fiscal 2024.

unmanned factories and mechanization of office work in

According to the morning edition of Tokyo Shimbun

the coming 10 years.

issued on May 22, 2019, the bank will go ahead with the

The government has also decided to accept foreign

job cuts by reducing the number of new graduates tolaborers,

citinga"seriouslaborshortage.”The

recruit, in addition to natural reduction due to retirement

government also has no concern that a "serious laborand temporary transfer of employees.

glut" will hit the country around 2030. As of April 1, 2019,

Indeed, many tasks of bank employees are routine

foreign unskilled workers were allowed to settle in Japan

work that is easily replaced by computers. As a result, theonly in 14 industries, including construction, agriculture,banking industry is blessed with "opportunities" tonursing care, lodging, restaurants, and building cleaning.

produce a high effect (reduction of labor costs) with

Many foreigners have already entered Japan with visas

relatively low IT investment. However, the improvement

to study at Japanese language schools and are workingof the efficiency of banking operations remains within theat construction sites or convenience stores without

framework of the Third Industrial Revolution, which is led

studying at all. Japanese language schools do not expel

by computers. This does not mean that an innovation

foreign students who do not come to school in order toincorporatingissecure tuition income. The main purpose of the majority

breakthrough enough to lead the 3 mega-banks to

artificial

intelligence

(AI),

which

of foreign students is not to learn Japanese but to makesimultaneously rush to reduce the number of employees

money in Japan.

and consolidate their branches, has happened.

The 14 industries in which the restriction has been lifted

In the case of most financial institutions, customers canare facing a serious labor shortage because Japanese

use ATMs at convenience stores to deposit and withdraw

job seekers have better job opportunities. Regardless ofmoney in their accounts, and those installed at thewhether it's because of AI or not, if employment

entrance of banks managing their accounts to transfer

opportunities are going to be significantly reduced in themoney or update their account books. Ordinary people

industries in which Japanese people want to get jobs,

are required to go to a bank and receive a face-to-facethey will have to find jobs in the 14 industries where they

service at the counter only when they withdraw or transfer

do not want to work, whether they like it or not. By abouta large sum of money exceeding 500,000 yen. As you can

2030, a significant number of factory workers and officesee, most banking operations have already been

workers will be forced to change jobs because factories

replaced by computers ages ago. The 3 mega-banks

will be unmanned and many clerical tasks are replaced

have all been forced to cut the number of employees andby AI. According to a joint study by Oxford University andbranches (or shift to the next-generation model) because

Nomura Research Institute, 49% of employed people will

the ultra-low interest rate policy has been continuing,

lose their jobs because of AI. However, since the job cuts

keeping them from earning profit from interest payments

due to the full-scale introduction of AI are expected toas brokers, and squeezing their profits.

begin first in large enterprises, the most desirable place
to find jobs would be SMEs, where AI or robots have notyet been introduced, and they will get the same jobs as

38

Chapter13: The Path to the Fourth Industrial Revolution, which is Hindered by Japanese-style Systems and Practices

before (such as finance and general affairs). However,companies that responded to the survey commissioned

many of those who lose their jobs will be forced to findby the Health, Labor and Welfare Ministry must take it forother jobs in one of the 14 industries. If that happens,

granted that Japanese-style employment practices will

there will be a fierce job-hunting competition between

continue to be observed. Employees who rely on theforeign workers and Japanese unemployed. If thissafety net of the Japanese-style management, in whichhappens, it is highly likely that a right-wing anti-

companies transfer them into other positions to take careimmigration populist party will emerge, as in Westernof them until their retirement, do not rush to buy

developed countries.

introductory books on IT and data science just because
they hear that computers will take over 49% of their jobs.

3. Lack of sense of crisis caused by Japanese-style
institutions and practices

4. Fundamental review of Japanese-style institutions

According to a survey commissioned by the Ministry ofand practices is required

Health, Labor and Welfare, "Report by the Study Group

Even if it is possible that AI and robots will replace theon the Effects of IoT, Big Data, AI, etc. on Employment

labor, it is another question whether it is valuable in terms

and Labor" (March 2017), when it asked “Whatof cost-effectiveness. A variety of AI systems with deep

percentage of white-collar workers in their mid-50s wholearning capabilities are stored at data centers ingraduated college will have their jobs entirely replaced bycountries far away, where electricity rates are low.

AI or IoT (and therefore, will no longer needed in their

Through the so-called cloud, you can send yourcompanies)?” 48.2% of companies answered that 0 tocompany’s financial data from your PC to a data center,

less than 10% will, while 27.2% answered that 10 to lessleaving the data processing to AI at the data center. For

than 20%, and 16.3% said 20 to less than 30%. Only

example, if you enter necessary and sufficient data into a

2.8% of the companies said more than 50% will.

PC in the financial department of the company, a data

Though it is uncertain whether the lifetime employment

center’s AI system dedicated to finance receive the datasystem is a blessing or a curse, it seems that Japanese

via the cloud and immediately send the results ofcompanies

requested data processing back to the PC in the financial

estimate AI

and

other

factorshavecomparatively low impact on employment. According todepartment of the company.

Japanese employment practices cultivated over many

The decision to adopt AI will depend on whether theyears, it is an employer’s duty and an employee’s right toreduction of personnel costs (effect) by cutting workers ofcontinue to take care of an employee, who is no longer

the financial department will be higher than the priceneeded, until he or she retires at the age of 65 by(cost) of computer services. At first, perhaps, the price oftransferring the employee to a different position within thecomputer services is so high that the costs outweigh thecompany or to a subsidiary, instead of firing him or her.

benefits in most companies, and adoption is discouraged.

Not only companies but also government offices andOnly large companies that can derive a lot of benefits

colleges are consistently maintaining the practice offrom reducing labor costs will embark on introducing them.

lifetime employment.

However, if two, three, and more computer service

Therefore, the warning that “49% of the labor force willcompanies begin offering financial AI services, the pricelose their jobs,” which a joint study by Oxford Universityof the services will definitely fall as a result of competition.

and Nomura Research Institute made, is a far-fetched

As the price falls, demand increases and the number ofidea for both Japanese companies and their employees.

companies introducing financial AI services will increase.

Under normal circumstances, the personnel department

However, if the lifetime employment system is firmly

in charge of new graduate recruitment should take somemaintained, the above discussion will have to bemeasures looking ahead 10 years from now. However,suspended. Even if the personnel costs of the financelooking at the recruitment situation in fiscal 2019, major

departmentcompanies other than the 3 mega-banks tend to rather

employment of the department’s staff members until theirhire more new graduates compared to the previous year.

retirement will increase, and the “effect” may be

In Japan, where the lifetime employment system isarereduced,

the

cost

of

securing

insignificant.

considered a matter of course, employees whose jobs

In the electric and automobile industries, which were atare being replaced by AI or IoT could be no longer

their height under the Second Industrial Revolution,needed but will never be dismissed. Many of theJapanese companies were able to dominate the world

39

Part1: What is the Fourth Industrial Revolution?

largely because of the Japanese-style employment

Technology (MEXT) planned to privatize them andpractices and the affiliated relationship between products

incorporate market principles into their operations inand parts manufacturers. Japanese companies andfiscal 2004. However, the reality was that "even if thecolleges were not able to be the vanguards ofinstitutions changed, the practices did not change."technological innovation during the take-off period of the

Perhaps the same is true of corporate management.

Fourth Industrial Revolution because Japanese-style
management,astypifiedbytheThe speed of the changes under the Fourth Industrial

Japanese-style

Revolution is remarkably fast. While smartphones have

employment practices, resulted in harmful effects. In

become popular rapidly (the first iPhone was launched inaddition, there remains a concern that the Japanese-style2007), China has adapted to the speed and alreadyinstitutions and practices could hinder the Fourthachieved putting in place cashless services, ride-hailingIndustrial Revolution from making a smooth start. As

services, unmanned convenience stores, and unmanned

already mentioned, it is because the effects of introducing

hotels. Unmanned home delivery vehicles and self-

AI systems into companies (mainly the reduction ofdriving buses are just around the corner to become

personnel costs) are discounted by the Japanese-stylecommonplace (Nikkei electronic edition published on July

employment practices.

16, 2019). Smartphones are essential to use theseIn order to revive the Japanese economy under theunmanned services. It must be said that the Japanese-

Fourth Industrial Revolution, a fundamental review of thestyle institutions and practices that are not compatible

Japanese-style institutions and practices must be given

with the Fourth Industrial Revolution are the main cause

the top priority. In order to reorganize national colleges,of the widening AI gap between Japan and China.

the Ministry of Education, Culture, Sports, Science and40

Chapter 14: "A New Renaissance" to be Realized through the Evolution of AI[Part 1] Chapter 14 "A New Renaissance” to be Realized by the Evolution of AI
1. Is the coming society a utopia or dystopia?

joint research predicts will "almost certainly disappear."

All of the first, second, and third industrial revolutions

It is certain that the jobs listed on the right are all likely

fostered new industries, developed a variety of new

to be replaced by AI or robots. Still, courier service isproducts, and greatly increased economic growth, labor

currently one of the most understaffed jobs, and the

productivity, and convenience and comfort of life. Of

number of deliveries will continue to grow indefinitely. It

course, friction was inevitable at the beginning of thewill take several more decades before robots delivertransition, but the welfare of the society as a whole has

packages by self-driving vehicle. Therefore, the number

been significantly improved after living through the period

of delivery workers will never decrease, only increase forof transition.

the time being. Before route bus drivers are no longer

However, opinion is divided on how the Fourthneeded, we have to wait until fully self-driving cars are

Industrial Revolution will change the society, the economy,

put to practical use.

and our life and whether the coming society will be a

A considerable amount of deep learning is needed in

utopia or a dystopia. Artificial intelligence (AI) with deeporder to have robots perform superhuman work on behalf

learning capabilities will replace most human labor.

of train cleaners, who can clean up cars of a Tokaido

Human labor was replaced by machines in the past 3

Shinkansen train shuttling back and forth from Tokyo

industrial revolutions as well. However, new industries

Station in 12 minutes (and those of Tohoku and Niigata

wereemployment

Shinkansen trains in 7 minutes). It is a hospitality,

opportunities were expanded, and we were able to avoid“Omotenashi” that is unique to human in whicha situation where a great number of people became

passengers receive when they get off the Shinkansen,

unemployed.

and the janitors bow at the exit. The cleaning robot's bow

created

one

after

another,

A far-fetched prospect that AI will automate factories,

is just funny, and the passengers don't feel any

replace most of the clerical works, and cause “nearly 50%

appreciation.

of the labor force to lose their jobs” is widely accepted.

After 5 years, 10 years, 20 years, and beyond, theSome argue that actual public assistance should betiming of vanishing jobs that the Oxford-Nomura joint

available to help those who lose their jobs. If the far-research predicts vary. In addition, the disappearance offetched prospect is right and the government provides theeach job gradually progresses, and it goes without saying

livelihood of jobless people unconditionally, 1 out of 2

that not all employees are dismissed all at once.

people in the labor force have to live an idle life. Without

Therefore, the conclusion of the joint research, "49a sense of participation in society, all human beings will

percent of the labor force will lose their jobs," must wait

lose their reason for living. The most basic social

until 2050 at earliest.

participation is labor. About half of the population who
have been excluded from the labor force live a life of

2. AI and hospitality

boredom isolated from society, using the benefits

As we discussed in the previous chapter, the 3

provided by the government as their livelihood. Under

megabanks have to cut the number of new graduatesthese circumstances, the Fourth Industrial Revolution will

they hire, aiming to decrease the number of employees

result in a dystopia, rather than a utopia.

in earnest. The banking industry has a plenty of room for

There are certainly jobs that will disappear as a result

reducing the number of people, as most of the work ofof the Fourth Industrial Revolution. The joint study bybank clerks, including the teller, is routine and can be

Oxford University and Nomura Research Institutereplaced with very basic AI. The ongoing reduction in theestimates that 63 out of 601 jobs have a more than 98

number of people at the banks is only a sign that banks,

percent probability of extinction (or will almost certainly

which are suffering from prolonged low interest rates,

disappear). General clerks, medical clerks, receptionists,have made efforts to cut costs and increase efficiency at

school clerks, dormitory and condominium administrators,

the expense of hospitality for customers.

catering chefs, bank clerks, cleaning staff, construction

If trade friction between the United States and China

workers, convenience store and supermarket workers,

escalates in the near future, a simultaneous global

home delivery workers, hotel room staff, train cleaners,

recession will occur, the global economy will contract, andand route bus drivers are familiar occupations that the

all industries will have to entrust routine work to

41

Part 1: What is the Fourth Industrial Revolution?

computers as much as possible and proceed for theacademic research and education (which are considered

reduction of the number of new graduates they hire. The

worthless under a market economy), and support thefollowing points should be emphasized. The substitution

development of artists, etc. Specific examples of theof computers for routine tasks, which is aimed atenhancement of public services should include free

improving management efficiency, should be positioned

medical and educational expenses, free nursing care,within the framework of the 3rd Industrial Revolution (inconservation of the natural environment, and thewhich computers play a leading role) that began in the

reduction of greenhouse gases, etc. A scholarshiplate 1960s. A classic example of the reduction of people

system should be established to support young

brought by the 4th Industrial Revolution is the substitution

researchers in such useless fields as philosophy, history,of professional assistants (e.g., a paralegal as anarchaeology, aesthetics, literature, and pure mathematics,

assistant to a lawyer) by an AI that has learned theand a government-sponsored research institute should

expertise.

be established to open the door wider for their

The choice between computers and humans depends

employment. We offer similar support to young people

on corporate decision making. At least I think it would be

who aspire to be artists.

better to have a job that involves serving customers, such

Is it not the arrival of the ultimate utopia that mankind

as a receptionist for visitors. It is too boring for a visitor toshould aim for, that people are freed from the "labor" of

tap the keyboard to enter its name and destination andproducing goods and services that can be priced andpass through the gate. It's possible to replace human

therefore useful, and that they are given the opportunity

visitors with computers right now, but most businesses

to devote themselves to intellectual pursuits that haverely on humans to accept visitors. This is because thatbeen regarded as useless or wasteful in the market

they believe that the value of the hospitality possessed

economy, while living humbly?

by their receptionist who receives the customer is worth
more than the salary that they pay the receptionist. In

4. Renaissance again

short, the reason that businesses daringly use people to

The interests of those who have been freed from thedo what computers can do is to give weight to hospitality

economic yoke such as poverty, labor, unemployment,

toward customers.

and production, etc. bound to leave the economy and go
to philosophy, literature, art and natural science. Ancient

3. Increased tax revenue from AI

Greece threw up philosophers such as Socrates, Plato

As mentioned earlier, gross domestic product (grossand Aristotle, and mathematicians such as Euclid anddomestic income) is divided between capital and labor.

Archimedes. The reason why many wise persons were

Currently, the labor share is around 60 percent. However,able to indulge in useless learning was that largely due toif the factory becomes unmanned and AI replaces mostthe work of slaves (who are said to have made up of one-of the regular routine office work, the labor share will fall

third of the citizens) working in the poleis (city state). It

to around 20 percent. While the effective tax rate on

was the existence of slavery that enabled the people incompensation of employment is about 5 percent, the tax

Utopia by Thomas More to work 6 hours a day, and torate on income distributed to capital, such as corporate

spare enough time for intellectual activities.

income,interest

dividend

incomeandexecutive

Until production became mechanized, the so-called

compensation, exceeds 20 percent. Thus, a significant'higher idlers' were supported only by slavery (in Japan,

reduction in the labor share would significantly increase

the tenancy system). The teachers of "Kokoro" (Thegovernment tax revenues. More than 20 percent of theHeart) and many of the high idlers who repeatedly appear

income earned by AI and robots, the core of capital, willin Soseki NATSUME's works are privileged classes whobe transferred to governments, taxation powers. This

collect rent from tenant farmers, have parasitic landlordsmeans that labor productivity gains from AI, IoT, and big

as their parents who lead a peaceful life, have no need ordata will double the value added that is distributed todesire to work on their own, and can spend their days

capital, and more than 20 percent of it will be transferred

reading books and thinking without any inconvenience.

to the government as taxes.

The 4th Industrial Revolution will make AI replace

How should the government spend the increased tax

stereotyped human labor. As a result, the government

revenue? My answer is: Increased tax revenues should

should spend a lot of money on human resources

be spent to enhance public services, promote uselessdevelopment, such as scholars and artists, as one of the42Chapter 14: "A New Renaissance" to be Realized through the Evolution of AI

ways to spend the increasing tax revenues. Thankfully, AI

of mankind," may make the labor involved in production

plays the role of ancient Greek slaves.

unnecessary. The government, which collects part of the

From the 20th century to the 21st century, universities

added value (income) generated by AI, should spend

recognized the cultivation of useful human resourcesmuch of the increase in tax revenue to promote science(contributing to economic growth) as their main raison(humanities, basic science) and art (including traditionald'etre. Private companies employ people and pay themcrafts), which are considered useless from the economic

salary if they can contribute to production. Since the(industrial) point of view. That's why.. Renaissance again

middle of the 1950s, Japan has focused on the growth of

To be sure, I must say the following: Make needlessgross domestic product, and the development andacademic researchers an option for young people. The

expansion of science or engineering faculties to foster theelites chosen from him or her will be given the privilege ofleaders of technological innovation, which is the driving

reading, thinking, and debating in laboratories in which

force of economic growth, has been a top priority in thethe state provides operating expense grants. Paving the

education policy.

way for new renaissance is the reality of the social

AI, which is said to be the "last technological innovation

change brought about by AI.

43

44

Part 2: Social Changes Associated with the 4th
Industrial Revolution

How will the 4th Industrial Revolution change the society and what are the challenges?
Changes in Media (Chapter 1), Law (Chapter 2), Innovation (Chapter 3), Economics(Chapter 4), Labor (Chapter 5), Competition Policy (Chapter 6), and Industrial Structure(Chapter 7) are discussed from the perspective of economics and law.

45

Part 2: Social Changes Associated with the Fourth Industrial Revolution

46

[Part 2] Chapter 1: The Role of Japanese TV Stations in the 4th Industrial
Revolution
Ken-Ichi SHIMOMURA ii[Summary]
It has become an era in which it is easier for individuals to post their own videos on shared sites. A huge
number of videos are uploaded by individuals in search of revenue from the ads attached to the videos
and the satisfaction of the posts per se and viewed around the world every day. What are the roles of TV
stations in this era? In this chapter, we consider the case of Japan, in which television stations are affiliated,and conclude that television stations are expected to search, select, and edit videos provided byindividuals on behalf of viewers, to accurately and quickly convey important information to local residents,
to sort out the images owned by each TV station, and to produce large-scale programs that cannot be
produced without large capital and information networks.

Notice: The English in this report was machine translated from the original Japanese before undergoing post-editing byhuman translators. In the event of any discrepancies between this translated document and the Japanese original, theJapanese original shall prevail.

ii

Professor, Research Institute for Economics and Business Administration, Kobe University

47

Part 2: Social Changes Associated with the Fourth Industrial Revolution

represent voluntary contributions by individuals of apublic good. The first condition is that each individual has"free access to the production technology" for the public
good, and the second condition is that each individual
receives "direct benefits of his /her own consumption"from the public good. Typical examples are security,
disaster prevention, and public health. Conventional TV
broadcasting, in terms of public goods production, hasbeen excluded from the analysis of voluntary contribution
because the first condition was not satisfied. In video
sharing websites, the condition is met. While the second
condition is clearly met, it seems important that somevideo sharing websites should meet a third condition thatis not found in traditional models. It means that eachindividual is an agent who receives "indirect benefits ofthe consumption by others" from the public goods. In
other words, each individual is an economic person who
has "altruism," in which he/she feels happy when others
are happy. A typical example is those who are committed
to charity and volunteerism: In principle, they do notconsume at all the public services that are the final
outputs even though they contribute by donations andlabor. In keeping with the structure of the model, a fully
altruistic individual is a person who does not consume
public goods but consumes "the satisfaction of others
who consume public goods." In the classical economic
model, an individual who does not satisfy this third
condition is regarded as the basis of an economic person.
The main purpose for this is to emphasize that, even in
the absence of altruism, each individual has an incentive
for voluntary contributions of public goods. However, in
the real world, there are many cases in which altruism is
the incentive for voluntary contributions of public goods.
In light of the above, the motivation for video uploading
by individuals who do not focus primarily on advertising
revenue can be divided into those that focus on "direct
benefits of their own consumption" and those that focus
on "indirect benefits of consumption by others."
The "direct benefits of self-consumption" of public
goods are, to be precise, to produce and consume byitself public goods that enhance its own satisfaction byusing production technology with strong externalities, and
it is an incidental event that the same service is supplied
to others due to the nature of public goods. Security,
disaster prevention, and public health, as exemplified
above, and installing fire-prevention devices and security
cameras, and removing wasps' nests from houses, andregularly disposing of garbage to prevent a house frombecoming a hoarding house, are the actions taken to
directly raise one's standard of living, while consideringothers in the vicinity. Even in the case of video uploading,the purpose of posting a video containing the uploader's
own
words
(generalpersons,
politicians,

1. Uploading on video sharing websites as provisionsof public goods by individuals
Since Nippon Television (NTV) began broadcasting on
August 28th, 1953, it has been the privilege of commercial
TV stations that have been licensed by the government
for almost half a century to earn advertising revenue
through the distribution of videos in Japan. The
emergence of online video platforms such as YouTube,
which was established in the United States on February
14th, 2005, has made it possible for the individual level inJapan as well. Shared site videos, according to theeconomic classification, are public goods with noncompetitiveness and non-exclusivity. Once someone has
consumed an ordinary good (private good), no one else
can consume it. However, videos on non-competitive
sharedsites
haveinexhaustible
consumption
opportunities for everyone (except during periods of
exceptional congestion). In addition, non-exclusive
sharing sites like YouTube, which are not subscriptionbased, cannot block specific individuals fromconsumption opportunities. As with commercial TV
stations, these shared sites can be operated free ofcharge simply because of advertising revenues.
Advertising revenue is also a big incentive forindividuals who upload videos. A YouTube uploader
whose primary purpose is to earn this advertising
revenue is called a YouTuber, and is not solely motivatedby his or her satisfaction or contribution to his or herorganization. Regarding this advertising revenue,
according to the "Top-Grossing You Tubers in the World"
ranking, a boy born in 2011 in the US made $ 22 Million
and $ 26 Million respectively in 2018 and 2019, andranked first in the world for 2 consecutive years. 1) The
reason for this high income is that video is a public good,
especially an international one. It has been a long timesince the "globalization of the economy" was mentioned,
but it is a remarkable example of unexpected phenomena
created by "economic globalization" that video clips are
so highly valued even though they do not need either realtransactions or as much production cost as movies.
Needless to say, video distribution is not just forrevenue. Many distributors are interested in the numberof views of their videos, in themselves, or in sharing theinformation of an organization to which they belong. In
other words, it can be said that a mutually beneficial
relationship has been established in which the sharedsites are likened to "landowners" and the uploaders to"farmers." In this case, a video posted by a common
person to a public sharing site may be used by a TV
station, and it is particularly useful for a news video.
These correspond to "voluntary contributions of public
goods" in the classical economics.
There are two conditions for an economic model to48

Chapter 1: The Role of Japanese TV Stations in the Fourth Industrial Revolution

businesspersons, musicians, entertainers, persons ofculture, etc.), traveling, eating, drinking, singing,performing, dancing, etc., are not in many cases toenhance the satisfaction of the viewers of the shared site
and to enjoy "indirect benefits of consumption by others."
The purpose is to "share" the same video which iscreated in body with many and unspecified people
instead of viewing it on your own personal computer as a
private property by uploading it to a sharing site andtransforming it into public goods. In other words, themotive for transforming one's own video from private
goods to public goods without the purpose of advertising
revenue is a desire to be known to others and is the sole
purpose regardless of the interests and disadvantages ofothers. Thus, it is decisively different from the direct
benefits of one's own consumption of private goods andthat of public goods.
In contrast, the emphasis on "indirect benefits ofconsumption by others" is based on one's desire tosimply "inform others" regardless of one's own interests
or disadvantages. A clear difference from the "direct
benefits of self-consumption" is the existence of the"anonymity" of the contributor, which is expressed in"want to let others know" and "want to be known toothers." Videos uploaded to shared sites are easier tokeep anonymous than videos broadcast on television.
There are some bad points in this regard, but a post by
someone who has a pure motivation to "let others know"
is a voluntary supply of public goods that is extremelysocially beneficial.
Regarding the Kobe Earthquake, which occurred at
5:46 on January 17th in 1995, the existing video records(at least those accessible to the general public) are
relatively limited. There are two types of video that can bequoted as the video taken immediately after theoccurrence: The video in the station which was
automatically recorded when the skip-back recorder ofNHK (Japan’s public broadcaster) Kobe BroadcastingStation detected the shake, and the video of "Ohayo
Tenki desu (Good morning weather)" of Asahi
Broadcasting Corporation (ABC, Osaka), which was the
only TV station in the Kansai region to broadcast live.
Considering the fact that the earthquake occurred earlyin the morning and that most of the video recordings ofordinary citizens at that time were made on home video,
thus, these two videos are extremely valuable. In fact, it
was after 8 o'clock when then vision was broadcast live,
and it was taken from the sky by a helicopter. On the other
hand, the Tohoku Earthquake and Tsunami, which
occurred at 14:46 on March 11th in 2011, has many
images. There are many stored images that show thesituation in which, from the moment of its occurrence, thedamages became enormous hour to hour and thebuildings were being destroyed, together with theexpressions of the people who confronted the scenes. In
particular, national TV stations continue to send real-time
images of tsunamis seen from helicopters in the sky, local
TV stations continue to relay images of coastal areas andurban areas, and in addition, ordinary citizens continue topost images of residential areas and homes one after
another on sharing websites. These 3 types of
information transmission records can still be confirmed
on YouTube. As a historical record, it can be said that thevalue as a video archive is very high from the necessityof considering disaster prevention from various fields inthe future.
In addition, there are intensively used videos taken by
ordinary citizens as a news video: They are video clips ofthe sinkhole near JR Hakata Station on November 8th,2016. This accident occurred during the tunnel
extensionwork of the Nanakuma Line of Fukuoka City
Subway. As the time of occurrence was before 5 o'clockin the early morning and abnormal water discharge wasconfirmed in the pit, the surrounding roads wereimmediately closed and the closure was completed at
5:10. After that, the road was continuously caved in,resulting in a huge hole about of 30 meters in length andbreadth and 15 meters deep. It was only a short time inthe early morning that the shooting seemed to berelatively easy. Thus, the TV station did not broadcast live
the scene immediately after the accident, and thesubsequent scene was broadcast from the sky by ahelicopter of a TV station nationwide, but it was after ahuge hole had already been made. In short, up to thispoint, it is similar to the Kobe Earthquake of 1995.
However, in the evening news broadcast nationwide, thescene taken from the ground in which two holes on bothsides of the road near the sidewalk were graduallyenlarged was broadcast first. Then, the broadcast video
was what had been taken from a window of a nearby
high-rise building, looking down on the ground: The
scene was that two holes were connected by anunderground cavity made by subway construction, andthe road resembling a bridge that was barely built on theholes collapsed. The video camera operators were allordinary citizens.
As described above, the video sharing websites havebeen continuously responding to the inexhaustible
demand of the general public to supply voluntarily variety
and large quantity of videos as public goods owing to thescale of the public nature and the payments ofadvertisement fees by the sponsors. The "landowner"
equivalent for the video sharing service, the "farmer"
equivalent for the uploaders, and the "consumer"
equivalent for the viewers all became rich. These areundoubtedly the fruits of the 4th Industrial Revolution. But

49

Part 2: Social Changes Associated with the Fourth Industrial Revolution

institutional design naturally lags behind technologicaland market evolution. The rise of video sharing websites
has begun to create problems.

low-quality videos with good thumbnails as if they were ofgood quality at first glance. However, the quality of theentire videos will be degraded if other people make suchintended posts and the number of bad posts increases.
This phenomenon can be described as a "tragedy of thecommons" in which quality declines rather than quantity.
If things become more and more like this, contributors
who have valuable videos or are serious about creating
new ones will change their sites to other video sharing
websites even if they are to pay higher registration fees.
In other words, Gresham's law, "Bad money drives out
good," is to be established.
Considering the current situation, YouTube, whichstarted its business in 2005, did not think of designing asystem that not only focused on the light of its prosperity
but also focused on the shadow of its prosperity. Rather,it did not have the time to think about designing a systembecause of its rapid growth that exceeded expectations.
Even though when poor quality videos are posted, goodquality videos are voluntarily posted from all over theworld at any time, so YouTube runs 24 hours a day anddistributes videos of both good and bad quality all over
the world.
Then, the role of the television comes into question.
The TV stations have been given the initiative in providing
information and entertainment from the film companies
and have been keeping this initiative for more than 50
years after broadcasting commemorative programs suchas "the International Professional Wrestling Match:
Rikidozan and Masahiko Kimura vs. the Sharp Brothers "in 1954, the "Wedding of Crown Prince Akihito to Michiko
Shoda" in 1959, and "Tokyo Olympic Games" in 1964, but
now their position has been threatened by the video
sharing service companies. Today's TV stations are at thestage of identifying the problems that movie studios faced
half a century ago: "What can only TV do?"; developing athorough product differentiation strategy against video
sharing services; protecting what needs to be protected;
and exploring new things through repeated trials andrevisions.

2. The essential difference between video sharing
websites and TV
The advent of video sharing websites has also createdphenomena not necessarily desirable for the digitalsociety, and eventually for the general public. Some
uploaders earn money by illegally copied videos
broadcast by TV stations or those produced by otheruploaders as a secondary use, and others earnadvertising revenue by posting fake news. On YouTube,
too, a large number of identical videos can be found using
the same search terms, confirming the existence ofvideos broadcast by TV stations and videos produced byother contributors (especially the former). In the case of
YouTube, a video broadcast by a TV station is supposed
to be deleted if the copyright manager of the TV program
reports an illegal posting to YouTube. However, the same
video may be posted a few days later. There are also a
number of low-quality videos with text on the photo but
the thumbnails look like normal videos, so it's easy toguess that they were uploaded only for advertising
revenue. In 1957, the late Soichi Oya, a journalist, said,"It is fair to say that ‘the Transformation of a 100 Million
People into Idiots' was being carried out by TV” in Japan.
2) However, the low-quality videos on YouTube have little
meaning, and the number of such videos is enormous.
Therefore, the impact on the current cultural environment,
both in terms of quality and quantity, is incomparably
greater than the TV programs criticized by Oya in 1957.
The reason for this problem is that the video sharing
website is a place for "voluntary contribution of public
goods" and that the "anonymity" of contributors toviewers is guaranteed. In other words, the main factor of
the success of video sharing services as a business andas a means of improving the quality of life has become“two-edged blade." In fact, in the context of the production
and consumption of public goods in traditional economics,
various phenomena that prevent the achievement of
Pareto optimality have been pointed out as examples of"market failure" and "prisoner's dilemma," and thedisorder caused by this uploader for the purpose ofadvertising revenue is a situation in which "Gresham'slaw" can be applied to "the tragedy of the commons," aspecial case of "prisoner's dilemma." In other words, if
you use a video sharing website where all of yourcontributors post bad videos, no one wants to see thevideos on that site, and there should be no ads for thevideos. So if you post low-quality videos that are createdat no cost to a site that is reputed to have a lot of highquality videos, you can at least benefit yourself if you post

3. What only TV can do
Now let's consider the assets that Japanese TV
stations should protect and the issues that they should
explore newly when they think through the productdifferentiation. First of all, since anyone can be acontributor to video sharing services, most of them areordinary citizens who are not trained in video production,and it is expected that the number of people who areprofessionals in video production and have experience of
producing and publicly releasing videos for a relatively
long time (30 minutes or more) to the public is limited. On
the other hand, it is difficult to enter TV stations located50Chapter 1: The Role of Japanese TV Stations in the Fourth Industrial Revolution

both in the big cities and in the local cities, and only those
who are judged to be the right person are allowed toparticipate in the production of a program. Although TV
stations are subject to various restrictions, including legal
regulations, technology, expression, ethics, budget, andconsideration for sponsors and other broadcastingstations, TV stations broadcast enough programs to fill
the TV schedule for almost 24 hours 365 days a year.
What are the competencies of TV producers to support
this?
In the first place, there are regulations on entries for
television broadcasting. In order to open a broadcastingstation and start broadcasting, the station must pass astrict examination and be granted a license from the
Minister of Internal Affairs and Communications. In the
production of a program, a producer usually supervises
the planning, personnel and budget, and the division oflabor among a director, AD (assistant director) and manyother staff is indispensable. Scripts exist for ordinary
programs and are written by professional writers.
Whether it is live or recorded, the quality of the program
depends on photographers and the voice technology bysound technicians. The accuracy of the information andthe appropriateness of the expression are always
required, and any broadcast that goes against themshould be corrected and apologized immediately. In
addition, the program will be discontinued if the above
failure is substantial, if there is a failure to achieve acertain rating even with no significant mistakes, or if the
program is no longer sponsored. If it is terminated, all thestaff will lose their jobs. Producers therefore have astrong incentive to produce the programs that society
demands.
In light of the above, the competencies of TV producers,
including the organizational skills of the groups theysupervise, must be so comprehensive and detailed thatthey cannot be compared with those of contributors togeneral video sharing websites. As for long-runningshows, the outstanding ability of successive producers
can be surmised. The know-how to find and train TV
producers is a tradition that Japanese TV stations should
keep up.
However, Japan's advertising expenditures bycompanies through TV peaked in 2016 and began to
decline. As a result, according to "Advertising
Expenditures in Japan in 2019" announced by Dentsu on
March 11th, Internet advertising expenditures were
2,104,800 Million yen (up 19.7% from the previous year),which is the first time that Internet advertisingexpenditures
surpassed
television
advertisingexpenditures of 1,861,200 Million yen (down 2.7% fromthe previous year). 3) This phenomenon is reminiscent of
the rapid increase in the number of specialty stores in

shopping malls amid a series of department storesclosures in recent years. In other words, a largeorganization with a long history, a distinguished trackrecord and a high profile is threatened by the emergenceof a large number of individuals who do not have thesestrengths. If TV stations recruit talented people but they
do not have the opportunity to produce TV programs, they
may end up losing their talented people to othercompanies or to different jobs. TV stations need a strong
mission to retain these people.
In light of this situation, TV stations are expected toplay the following four roles when individuals can send
videos online now and the future.
1. To search, select and edit videos provided by outside
agencies on behalf of viewers
2. To convey important information accurately andpromptly to the region
3. To classify and organize images owned by thecompany
4. To produce programs that cannot be produced
without large capital and information networks
The first role, "to search, sort, and edit videos provided
by outside agencies on behalf of viewers," is, in short, "TV
stations should be a good judge." On the video sharing
websites, a huge number of videos are uploaded without
being censored or classified in principle, and viewers
choose videos based only on search terms andthumbnails. The judgement of good or bad depends only
on the "evaluation button" and comments of ordinary
viewers. It is also possible to consolidate the videos inwhich politicians talk about with glowing comments andpraise from supporters alone. The possible way of sortingout videos on shared sites is aggregation of public ratings,
which can be good or bad. The reason for the recognitionof Japanese manga as high quality by global standards
is because the manga was serialized in weekly ormonthly magazines endorsed by the editors with strict"discerning." In addition, the world is full of videos taken
by amateurs and professionals, including sharing
websites, and there are various types of videos that areneither informative nor commercially valuable. TV
stations are expected not only to produce their own
programs, but also to play the role of "discerning editors"
who select what to broadcast from these videos. That is,in physical sales, it is not the producer but the"intermediary" or "retail" who buys good quality products
for sale to consumers. This job cannot be done byamateurs without professional knowledge.
The second role, "To convey important information
accurately and promptly to the region," means, in anutshell, "TV stations should function as an alarm
annunciator." Since 1995, the year of the Kobe

51

Part 2: Social Changes Associated with the Fourth Industrial Revolution

Earthquake, natural disasters such as earthquakes,
torrential rains, typhoons, infectious diseases haveoccurred almost every year somewhere in Japan. For thegeneral public, the most important information about
these disasters is the degree to which their danger isimminent, and this is nothing but information of the regionin which they live. It is not unusual for an announcer of a
local TV station to report the latest situation of heavy rain
and strong wind. How many citizens survived the 2011
Tohoku Earthquake, after seeing a video of Tsunami byhelicopters from the sky on TV and took shelter?
Typhoons have been hitting Japan almost every year, anda large number of people across the country probably
stopped going out after hearing an announcer say, "Don't
go near the sea, the river, or the irrigation channel." At
home, however, we can see the images of the raging sea
and the swollen river taken by TV stations. This isbecause television professionals can shoot images as
close as possible to with sophisticated equipment andexcellent techniques based on their own knowledge andexperience although it would be too dangerous foramateurs to do so.
The third one, "To classify and organize images ownedby the company," is, in a word, "TV stations should
become databases." TV stations have an overwhelming
advantage over video sharing services, which began in
the 21st century, as they have a long history ofbroadcasting archives. In recent years, it is conspicuousthat NHK and commercial TV stations have cooperated
in producing programs on a certain theme, and many
programs have been produced by sharing old images. In
particular, the deaths of celebrities who played an activerole in the Showa era have been frequently reported inrecent years, and such a cooperative system is
indispensable for programs that look back on thefootprints of such celebrities. It is also said that programs
that feature popular songs of the past based on a single
theme are the "steel-plate TV show," meaning that they
can get a high rating without fail. In recent years, TV
stations' advertising revenues have been declining, so it
is inevitable to reduce production costs. Among them,archive is a precious resource that enables the
production of programs by editing existing images, andthe high viewing rate of programs by editing increases
advertisement revenue, and also promotes the
production of programs by new shooting. Suchprogramming is nearly impossible at the personal level,
unless a huge number of videos have been collected.
In recent years, NHK regularly broadcasts programs
that use old images, delivers them on the Internet, andoffers free access to some old programs at NHK stations
around the country. These tasks can only be done bybroadcasters with more than half a century of history andtrack record. Since NHK began to systematically keep themaster tapes in 1981, it has however been calling on theprivate sector to provide video records before that. 4) Thisis because it has become clear that the private sector has
tapes that TV stations do not have as master tapes: The
private sector has a large number of difficult-to-find items
such as tapes recorded by individuals who owned thevideo and films recorded on TV screens with 8 mmcameras. It is not hard to imagine that the discovery was
triggered by the emergence of video sharing services.
This is a good example of how a company's entry into themarket has provided new opportunities not only for
consumers but also for competitors.
The fourth one, "To produce programs that cannot be
produced without large capital and information networks,"
is, in a nutshell, "TV stations should leave behind quality
images that will become archives of the future." Except
for the latest news programs, the daily news programs inrecent years are based on the images that “catchaudiences’ interest” such as on-the-spot interviews andlive broadcasts. After watching them, the TV presenter
often called MC (Master of Ceremonies) communicateswith a few of commentators about the news topics inorder as planned. The costs of the interview and the relay
will be reduced, but if you make even one mistake in theprocess, meaning that the MC and the commentators will
have too much subjective view, then the program will
become different from the original purpose. Rather, thestyle of "special program", which focuses on on-site
interviews and video editing by giving it time in any way,
is more suitable for archiving.
You can also see what the archive should look like on
sports shows: The seventh game of the 1979 Japan
Series on November 4th, which matched Hiroshima Carpagainst Kintetsu Buffaloes (produced by NHK and called‘Enatsu's 21 Pitches’), and the doubleheader between
Lotte vs. Kintetsu on October 19th, 1988 (produced by
ABC and called “10.19”) are regarded as a monumental
games of Nippon Professional Baseball. These games
have been taken up many times by both NHK and private
broadcasting. What is included is actual scene andexplanation by the announcer on the day and the guest,
and the interviews on site to the players and people
involved made at a later date including the narration. Thisis enough for archiving. Some news reports startsuddenly without notice, and people are glued to thetelevision. This is true with breaking news on disasters as
well. Other than that, the Mishima Yukio Incident (1970),
the Asama-Sanso Incident (1972), and the sporting gun
kidnapping at the Kitabatake branch of Mitsubishi Bank
(1979) were broadcast nationwide instead of theoriginally scheduled programs of the day. TV programs
that reflect on the turbulent times of Showa often use the52Chapter 1: The Role of Japanese TV Stations in the Fourth Industrial Revolution

images of those times. In fact, the Lotte Orions vs. theKintetsu Buffaloes, the doubleheader game of Nippon
Professional Baseball called "10.19" in 1988, was notshown on the program list of the day except for ABC(Osaka), Higashi Nippon Broadcasting (Miyagi) andKyushu Asahi Broadcasting (Fukuoka). However, it was
suddenly broadcast nationwide by the decision of theupper management of TV Asahi (Tokyo), and not only
scheduled programs but also commercials were omitted 5).
(Even on the last day of the Asama Sanso Incident on
February 28th, 1972, TBS and Fuji TV omitted all thecommercials. 6))
It is a unique Japanese TV network that has made it
possible to broadcast these nationwide suddenly. In
Japan, there are five major private broadcasters with key
stations in Tokyo and Osaka: TV Asahi with ABC, TBSwith Mainichi Broadcasting, NTV with Yomiuri Television,
Fuji TV with Kansai TV, and TV Tokyo with TV Osaka.
These are news networks centered around the national
newspapers: Asahi, Mainichi, Yomiuri, Sankei, and Nikkei.
These affiliates share not only news, but also a
considerable number of programs produced by the key
stations in Tokyo on a daily basis, so in Japan there are
essentially five nationwide TV stations. In the case of"10.19," TV stations affiliated with TV Asahi and ABC
nationwide simultaneously broadcasted the game. All ofthese affiliates have enormous capital and information
networks backed by newspaper companies, and are
powerful business alliances extending from Hokkaido in
the north to Kyushu and Okinawa in the south. There isno organization other than NHK and these five major TV
stations that has the power to create a video archive thatis a valuable cultural product in terms of Japan's politics,
economy and society.
The mission of these organizations is to ensure that

this unwavering position and role is maintained, and not
giving it to the fast-growing video sharing services. For
this reason, TV stations cooperate with each other in thesame network to produce programs that are universally
evaluated as good quality, and the number of viewers will
surely increase if better quality programs are produced
through competition among TV stations. Japaneseviewers have an experienced eye. It may sound optimisticthat advertising budgets will come back to television fromthe Internet as more viewers turn to TV. The feasibility ishowever high enough. This is because becoming asponsor of a popular national TV program will improve thecorporate impression of society. In fact, as soon as
Toshiba had withdrawn itself as a sponsor from the
popular animated TV show "Sazae-san" at the end of
March 2018, nearly 10 companies offered sponsorship.
Then, Amazon Japan (Internet shopping), Nishimatsuya
Chain (baby products), and Daiwa House (homebuilders), all of which are prominent big companies, wereselected.
4. Concluding Remark
The five major TV station networks in Japan, which are
centered around main newspaper companies, were
designed based on the concept of the late Kakuei Tanaka(Prime Minister of Japan from 1972 to 1974) when he was
the Minister of Posts and Telecommunications from July
1957 to June 1958. This project was completed on April
1st,1975, after his resignation as Prime Minister 7). This
article concludes by saying that the influence of Kakuei
Tanaka on TV stations will continue until the Reiwa era incompeting with video sharing service companies as longas the cooperation of TV station networks becomes
inevitable for themselves.

[Note]
1) Natalie Robehmed and Madeline Berg (2018) "Highest-Paid YouTube Stars 2018: Markiplier, Jake Paul, PewDiePie
and More," Forbes, Daily Cover, December 3, 2018; Madeline Berg (2019) "Highest-Paid YouTube Stars 2019: The
Kids are Killing it," Forbes, Daily Cover, December 18, 2019.
2) Soichi Oya (1957) ‘Whatever one wants to say (Iitai Hodai)’ Weekly Tokyo (Shukan Tokyo), February 2nd,1957. Later,
the word "so = all" came to be attached, and the trendy word “All-100 Million-Will-Become-Idiot-Transformation” werecoined.
3) DENTSU INC. "Japanese Advertising Expenditures 2019" News Release March 11th, 2020.
https://www.dentsu.co.jp/news/release/2020/0311-010027.html
4) NHKArchives
https://www.nhk.or.jp/archives/
NHKTV program Hakkutsu Project Correspondence
https://www.nhk.or.jp/archives/hakkutsu/
5) From the explanation of Hiroshi Kume (MC) in the broadcasting "News Station" on December 30th,1988.
6) "Asama Sanso Incident” Wikipedia
7) Masayasu Hosaka (2010) Tanaka Kakuei no Showa, Asahi Shimbun Publications.

53Part 2: Social Changes Associated with the Fourth Industrial Revolution

54

[Part 2] Chapter 2: Copyright Law’s Treatment of Computer Creations
Masaharu MIYAWAKI iii[Summary]
This article introduces basic concepts such as "works" and "authors" under the current Copyright Law,
and introduces what discussions have been made on legislation for works in which the use of computers
is involved in the creation process, and adds some consideration.
Computer creations (AI products) without human creative involvement are not protected under thecurrent Japanese copyright law. There has been debate about whether future legal changes should bemade to protect AI products, but protecting AI products is not consistent with the idea behind the current
copyright law. It would be sufficient to take minimal action against the act of claiming that the AI productis a work of its own.
Notice: The English in this report was machine translated from the original Japanese before undergoing post-editing byhuman translators. In the event of any discrepancies between this translated document and the Japanese original, theJapanese original shall prevail.

iii

Professor, Graduate School of Law, Ritsumeikan University

55

Part 2: Social Changes Associated with the Fourth Industrial Revolution

1. Introduction

expressions. Conversely, creativity is affirmed if the

Today, the news that artificial intelligence (AI) has

expressions do not apply to these. In recent years, thecreated novels, paintings, and other works is becoming

position of understanding that the 'room for choice' ofmore common, and in the future, AI-created works may

expression sufficiently remains (the theory of choice) inbecome pervasive in society. If AI produces art pieces,creativity has become dominant, but since the concretesuch as paintings, music, and poetry, whose output is notcriterion is the same as the traditional understanding, it

predictable to the developer, will they be protected bycan be said that there is no difference in the conclusion

copyright? If not, should they be protected in the future?

between the traditional understanding and the recent

This issue has been discussed since the 70s, as

dominant theory (theory of choice).

described in more detail below, but has not been

In this way, the hurdle for recognizing copyrightability isconcluded yet. In the following sections, we introduce

not high in general, and even pictures drawn bybasic concepts such as "works" and "authors" under thekindergarteners are copyrightable. However, this is only

current Copyright Law, and then introduce somethe case when a real person created it. The above

discussions on the legislation of works in which the use"thought or emotion" is considered to be "thought orof computers is involved in the creation process

emotion" of a real person. Therefore, if a real person is(hereinafter referred to as "computer creations", andnot involved in the process of creating a specificamong them, works produced by AI, which is a particular

expression, it cannot be said that the "thought or emotion"

problem today, are referred to as "AI products").

of a human being is expressed, and the work is not a
copyrighted material.

2. Copyright and Authorship Basics
2-1 Copyrightability

2-2 Author and Creator

To be regarded as copyrighted material, it must be a

The author has a copyright (copyright property right)

work to be copyrightable. A work under the Copyright Act

and moral rights of an author (Article 17 of the Copyrightis "a creative expression of thought or emotion that falls

Law). Of these, copyright is transferable (Article 61 (1)),

within the scope of literature, science, art or music"

and it is possible that copyright belongs to someone other(Article 2, paragraph 1, item 1 of the Copyright Act). The

than the author, but when the work is created (Article 51

term "thought or emotion" as used herein does not have(1)), in principle, it is the author who first acquires theto be academically or artistically superior, but can be any

copyright, and this is called "creator-on-principle." I would

thought or emotion. If such a thing is expressed in a state

like to explain the concept of this "author" just in case.

that can be sensed objectively by human’s five senses, it

The Copyright Law defines "author" as "a person who

can be called "expression." With regard to thecreates a work" (Item 2, Paragraph 1, Article 2). As

requirement of "belonging to the scope of literature,

mentioned above, in order to be a work, it must be ascience, art or music," it is not usually necessary tocreative expression (Item 1, Paragraph 1, Article 2).

consider each of these categories, such as "literature"

Copyright is the right to the work, and the effect ofand "art," and in short, this requirement is satisfied if the

copyright does not extend to the part that is not a creative

expression belongs to the domain of culture. Then, what

expression. That is, even if there is a part in common withremains is the requirement to be "creative." In manyan existing work that is created on the basis of an existingcases, whether or not a work is a copyrighted work

work, if that part is not a creative expression but merely adepends on whether the work satisfies this requirement

fact or an idea, it is not a copyright infringement. On the(the requirement of creativity).

contrary, if the essential part of the creative expression is

In order to satisfy the requirement of creativity, it is not

maintained, even if there is a difference from the existingnecessary to have a high level of originality or artistic

work, the copyright is infringed (if the creative expression

quality. Creativity is traditionally understood to be thewhich is not in the original is added, it can be regarded as

manifestation of some individuality. And creativity is

the creation of the adaptation, but this does not exempt

denied if expressions will be the same if done by anyone

the copyright infringement). Considering that creativity isbased upon the identical idea, or if they are ordinary

an important concept that determines the scope of56

Chapter 2: Handling of Computer Creations under copyright laws

copyrightability and copyright, it is most natural to

As described above, there are many computerunderstand that "a person who creates a work" means acreations that can be said to be creative expressions (ifperson who makes a creative expression of the work.

they were created by humans) today, but if there is no

Even if it is an act that contributes to the completion ofhuman creative involvement, it cannot be said that humana work, such an act cannot be regarded as a creative act"thoughts or emotions" are expressed, and therefore they

if such a contribution is not directly related to the creative

are not considered to be works. The only exception in theexpression of the work. Specifically, the provision ofcurrent system in which a person who does not act

equipment, funds, and opportunities for creation, or thecreatively becomes the author is the work for hire system,

mere provision of ideas, is not a creative act in itself.

and there is no assumption that a machine acts creatively

The only exception in which a person who has not

on behalf of a human being.

made a creative act becomes the author is in thefollowing case of a work for hire.

3. Debate over legislation to protect computer
creations

2-3 Work for hire

As described above, under the current Copyright Act in

As already mentioned, the author under the CopyrightJapan, AI products in which humans are not involved

Act is a person who has made a creative expression.

creatively are not protected under the Copyright Act.

Although a creative act is a factual act that can only beThen, should such works be protected in the future?

performed by a physical person, the Copyright Act allows

Discussions on computer creations have been held inan organization such as a corporation to become an

various countries, including Japan, since the70s, and are

author if certain requirements are met (Article 15). Therebriefly introduced below.

are various theories about the Copyright Act, which
defines authors as "persons who create works," but on

3-1 United States

the other hand, recognizes that corporations which are

The debate over the protection of computer creations

not allowed to create works can be authors. Here, we

under copyright law has a long history. For example, in

explain that the Copyright Act is based on the principle

the United States, the National Commission on New

that physical persons who create works are authors, but

Technologicalin certain cases the corporations are assumed to beestablished in 1975. CONTU) also discussed theauthors and they are the authors from legal perspective.

treatment of computer-generated works.

In the case of basic requisite for a work for hire, other

Uses

of

Copyrighted

Works

was

In the CONTU report, published in 1978, the following

than a program,

were examined as examples of computer creations at(i) ON THE INITIATIVE OF A COMPANY OR OTHER

that time: assistance in drawing anime, computer

EMPLOYER ("COMPANY, ETC."):

composition, and simulation of instrument tones. The(ii) A WORK PRODUCED BY A PERSON ENGAGED IN

report concluded that computers are just like cameras

THE BUSINESS OF THE CORPORATION, ETC. IN THE

and typewriters, and typewriters; they cannot be authors

COURSE OF HIS DUTIES

in their own right. Given the technology of the time, it is(iii) THE CORPORATION, ETC. PUBLISHES UNDER

only natural. To date, the United States has not provided

THE NAME OF ITS OWN WORK

copyright law with computer creations.

(iv) THE CONTRACT, THE RULES OF SERVICE, TIMEOF

ITSPREPARATION

DO

NOT

PROVIDE

3-2 United Kingdom

OTHERWISE;

The United Kingdom created provisions for computer-

ARE REQUIRED (para. 1, Article 15). In the case of agenerated works through a 1988 amendment to thework of program, the requirement for the title of

Copyright Law, which allows computer products without

publication in (iii) above is not necessary (paragraph 2).

human authors to be protected for 50 years after theircreation. That is, Article 178 of the United Kingdom

2-4

Current

Institutional

TreatmentofComputer

Copyright Act provides that "computer production" means

Creationsthat a work is produced by a computer in the absence of57

Part 2: Social Changes Associated with the Fourth Industrial Revolution

a human author of the work ", and Article 9 (3) of the

it is not very useful in this respect. There seems to be no

United Kingdom Copyright Act provides that" the author

court precedent yet in which the authorship of AI-

of a work produced by a computer is deemed to be theproduced works is being contested.

person by who the arrangements necessary for thecreation of the work are undertaken. "(The Irish Copyright

3-3 Japan

Act, the New Zealand Copyright Act, etc. have similar

In Japan, the protection of computer creations underprovisions.)

the Copyright Act has been under consideration since the

An English case in which the application of this70s. In other words, this issue was discussed in theprovision became a problem is Nova Productions Ltd. v.

second Committee of the Copyright Council (Computer

Mazooma Games Ltd. 1). In this case, the similarity ofRelations) established in 1972, and the report 2) wasvideo games based on billiards was challenged, and the

published in 1973. As in the United States, computers ofquestion arose as to who was the author of the screen

this age are no more than mere "tools," and it isdisplay (shown below) that was generated in response toconcluded that "the author of a computer creation

user operations. The judgment shall be that the screen

embodies his feelings of thought as a unique expression

representation is the work of the programmer or ain the computer creation."computer work. (as referred to Article 9 (3) of the United

In the 80s, the ninth Sub-Committee of the Copyright

Kingdom Copyright Act) However, in this case, it is only

Council(Computer

Creations

Subcommittee)

wasagreed that the same expression must be used if a similar

established, and studies on computer creations havegame is to be created, and the parts that should bebeen conducted. However, computers of this age haveprotected under the Copyright Act (the creative part) were

not yet come out of the realm of tools, so it is not assumed

not similar, so the infringement of copyright is denied.

that computers express themselves creatively. In theReport 3 published in 1993, it is concluded that "if acomputer creation is copyrightable, the author isconsidered to have contributed creatively to the creationof the concrete result, but in normal cases, it isconsidered to be the user of the computer system." Thereport says, "At least at this point in time, most computer
creations used in various fields can be regarded as
human contributions, and internationally, only the United
Kingdom has established provisions for computer
creations that do not have human authors. It is therefore
appropriate to conduct a careful examination whileobservinginternational

anddomestic

trendsintechnology and legislation in the future."
In 2015, when it was predicted that AI would create
creations equivalent or superior to human beings (without
human involvement in creation), the Cabinet Office, theIntellectual Property Strategy Headquarters, and the Next

In other words, this case is a case in which copyright

Generation

infringement is denied regardless of the author, andIntellectual

Property

SystemReviewCommittee discussed "Creations Created by Artificial

whether it is a computer product or not does not influenceIntelligence and the Intellectual Property System." The

the conclusion, so the value of this case as a court

Report 4), which was published in 2016, states that theprecedent is low. Also, because the work in question is"future direction" is to "examine in detail how intellectual

different from the work created by AI, as was the caseproperty protection should be, from the perspective ofwith the 4th Industrial Revolution (it is hard to believe thatinvestment protection and promotion for those involved in

the law of 1988 assumed such a work in the first place),certain" high-value "AI creations, focusing on, for58

Chapter 2: Handling of Computer Creations under copyright laws

example, the value created by their provision to thedevelopment of AI to create a creative product. However,market."such an incentive is different from the incentive forIn the following year, the Cabinet Office, the Intellectual

creation in the first place, and it is not clear whether theProperty Strategy Headquarters, and the new Information

free use of the product itself will reduce AI development.

PropertytheResearch and development of human equivalent

copyrightability and authorship of "AI products." However,creations is an attractive research theme in itself, andin the Report 5), it is recognized that "it is difficult at this

there seems to be sufficient development incentives forpoint to determine a specific direction for the extent ofresearch institutions such as universities, regardless of

involvement as a creative contribution in a situation

the legal protection of their deliverables. For commercial

where changes in AI technology are very severe andAI development, the commercial value of creative AI

there are not many specific examples." As a futureseems to be high, so there is a possibility that thedirection,

invested capital can be recovered by selling AI (machines

ReviewtheCommittee

Reportstatesdiscussed

that

"the

ongoingunderstanding of specific examples of AI products" andfor creation that installed AI), which is a direct product.

"the relationship between the copyrightability of AI

Rather, the problem is that, by allowing free use, AI

products and creative contribution……., we will continue

products (without human involvement) can be used muchto examine the matter in line with specific cases whilecheaper than content created by humans. In other words,

paying attention to the situation." This direction was also

if the AI is able to create a creation equal to or better than

indicated in the “Intellectual Property Promotion Plana human being, there is a for professional creators to lose

2017,” and was described as a continuing issue from thetheir job. But that doesn't mean that the copyright of AI

previous year in the “Intellectual Property Promotion Planproducts should be allowed in order to protect

2018” of the following year, but it is no longer described

professional creators and raise the price of the use of AI

in the “Intellectual Property Promotion Plan 2019” and the

products. The cheap availability of good content islatest “Intellectual Property Promotion Plan 2020.” 6)

welcome in itself, and the possibility of "AI steals jobs" ishappening in all professions, and it seems hard to find

4. Examination on the necessity of revising the Act

any reason why professional creators should be treated

There is a debate on the need to revise the Copyrightexceptionally.

Act to protect computer creations (AI products) that do

The self-claimed content issue of (2) is that there may

not involve human creativity. The reasons why AI

be a person who claims that a creation created by AI is

products should be protected under the Copyright Act

his or her own creation (in order to receive copyrightinclude (1) the unfairness of not receiving any legal

protection). However, allowing copyright protection for AI

protection from expressions that would be a work if

products in order to eliminate such a disguised self-

created by a human being, and (2) the issue of content

claimed incentive seems inadequate as a means. As

that is self-claimed.

mentioned above, the free use of excellent content has

The problem of (1) is that AI products without humanits own social merit and should not be reduced. It seems

creative involvement are not protected by the law, so thatthat the problem of self-claimed content can be dealt withsuch products can be used freely. Indeed, it is intuitive

simply by strictly requiring proof of authorship and bythat this is a problem, but it is unclear why it should be

strengthening penalties for self-claimed content. In otherprotected under the Copyright Act. According to thewords, it will suffice to say that regarding the expression

Copyright Act, copyright is granted to a work in order tocreatable by AI, so long as detailed creation process isprovide an incentive for creation. However, AI does not

not proved, authorship shall not be recognized at theneed such an incentive.

court. At least for the time being, such a revision of theWhat is likely to be a problem is the incentive for thelaw would be sufficient.

[Note]
1) Nova Productions Ltd. v. Mazooma Games Ltd., [2006] EWHC 24 (Ch).
2) http://www.cric.or.jp/db/report/s48_6/s48_6_main.html

59Part 2: Social Changes Associated with the Fourth Industrial Revolution

3)
4)
5)
6)

https://www.cric.or.jp/db/report/h5_11_2/h5_11_2_main.html#1_2
https://www.kantei.go.jp/jp/singi/titeki2/tyousakai/kensho_hyoka_kikaku/2016/jisedai_tizai/hokokusho.pdf
https://www.kantei.go.jp/jp/singi/titeki2/tyousakai/kensho_hyoka_kikaku/2017/johozai/houkokusho.pdf
For each year's "Intellectual Property Promotion Plan," visit the Intellectual Property Strategy Headquarters website.
See https://www.kantei.go.jp/jp/singi/titeki2/.

60

[Part 2] Chapter 3: The 4th Industrial Revolution and Innovation in the ICT
Field and Intellectual Property Rights
Koichiro ONISHI iv[Summary]In the 4th Industrial Revolution, the importance of R&D investment in the ICT field has been augmenting.
However, in the area, the relationship between patent rights among companies is becoming complicated.
Besides, in recent years, a large number of players with different interests have entered the market, andthe so-called entangled patents problem is becoming severe. To solve this problem, fair, reasonable, andnon-discriminatory licensing are required, but such contracts may reduce the profit from R&D. In otherwords, the patent system that increases the appropriation of earnings from inventions does not function
well in the ICT field, and as a result, the appropriate incentive for R&D is impaired, and R&D investment
may decrease in the future.
Notice: The English in this report was machine translated from the original Japanese before undergoing post-editing byhuman translators. In the event of any discrepancies between this translated document and the Japanese original, theJapanese original shall prevail.

iv

Associate Professor, Faculty of Education and Integrated Arts and Science, Waseda University

61

Part 2: Social Changes Associated with the Fourth Industrial Revolution

1. Introduction

system functions effectively.

In the 4th Industrial Revolution, progress in software

One of the characteristics of the ICT field is that it istechnology, such as AI, and data accumulation, is an

impossible for a particular company to monopolize theincreasingly important issue. However, innovations inmarket by exercising its patent rights. This is because

hardware equipment, such as the minute refinement andvarious technologies are used in a product in this field,

miniaturization of semiconductors that support such

such as semiconductors, liquid crystal displays, andtechnology, the speedup and capacity enhancement ofsmartphones, and a large number of technologies arecommunication technology, and the refinement andpatented in the product. Under the situation, too many

miniaturization of sensor technology, are also essential.

patents are related to the product, creating a situation in

However, the ICT field, including the hardware devices

which it is not known in advance whether or not there is

described above, faces various intellectual property

an infringement. And there is always a risk in whichrights problems. Originally, there are many patents

companies that manufacture products are infringing otherrelated to products that count from several hundreds tocompanies' rights. This state is called "Patent thickets"several thousands in this field, and efforts to adjust patent(Shapiro 2001) 1). Again, in areas where patent thickets

holders' interests have been carried out mainly by major

are occurring, patents don't work in the original meaningelectronics manufacturers. However, in recent years,

that each company makes money from a market

while the number of players with different interests hasmonopoly. Patent thickets suggest that companies are

been increasing, there has been a situation in which it isalways likely to infringe on the rights of others, and that if

notthey manufacture a product under such circumstances,possibletoappropriately

coordinate

among

companies.

they may be suddenly charged with massive damages for

As for innovation activities, there is so-called "market

the infringement.

failure" in which R&D investment is not made to a socially

To alleviate this situation, large companies that market

desirable level due to the fact that investors cannot fully

their products make a large number of patents that otherappropriate the profits from R&D investment due tocompanies are likely to infringe, so that they can counter-knowledge spillovers. One of the means to solve theclaim infringement if they are sued for infringement. This

problem is the patent system. This is a system forpractice of patenting in which each company tries toinvigorating innovation by granting companies, etc. foracquire rights in patents that are likely to be infringed bytheir invention the right to use an invention exclusively forother companies is called patent portfolio competition.

a certain period of time, thereby providing an opportunity

There is an aspect that such an act further aggravates

to secure benefits from the invention. However, while thethe patent thickets 2).

importance of R&D investment in the ICT field has

With the exception of patent infringement lawsuits

increased under the 4th Industrial Revolution, the patent

between Apple and Samsung, in many cases, companies

system in the ICT field does not function well in thisavoid the lawsuits by negotiating licenses between theoriginal sense, and as a result, there is a possibility thatparties. 3) However, the issue here is the issue ofappropriate R&D incentives may not be provided. Thistransaction costs for licensing negotiations and the issue

article outlines research and development and patentof royalty stacking, which means that it increases

rights in the ICT field, which plays a central role in the 4th

manufacturing costs due to the accumulation of license

Industrial Revolution.

royalties. The both companies will have to agree on thefinancial value of patents when negotiating a license, but
it will take a lot of time and money for them evaluate an

2. Current status of patents in the ICT field
The patent right is originally a system to exclusively

enormous number of patents one by one. Such

grant the right to use an invention for a certain period intransaction costs can interfere with a firm's production

order to promote the invention to the inventor. However,activities. Also, even if an agreement is reached on a low

the extent to which a patent allows a company tolicense royalty for an individual patent, the accumulationmonopolize the profit from an invention varies greatlyof the license royalty will result in an increase in thedepending on the technical field (Cohen et al. 2000). In

company's

the chemical and pharmaceutical industries, it is possible

impossible for the company to make sufficient profits. And,to patent chemical agents. Since it is difficult for otherin the worst case, it may prevent the company fromcompanies to imitate it, we can say that the radical patentengaging in production activities.

62

manufacturingcosts,

which

makes

it

Chapter 3: The Fourth Industrial Revolution and Innovation in the ICT Field and Intellectual Property Rights

For this reason, large manufacturers in the ICT field

there has been a tendency for policy guidance to weaken

have been trying to solve problems using cross-licensing

the effect of patent rights, such as raising the bar for theand patent pooling. A cross-license is a licensing

suspension of patent rights by PAE, etc., since the middle

agreement between the two companies under whichof the 2000 s. 4)each company can, in principle, freely use the patents
necessary for product commercialization free of charge.

3. Patent Pools and the Anti-Monopoly Act

Cross-licensing avoids paying license royalties for

Because patents are a recognized system forindividual patents, thus avoiding the so-called "double

monopolizing the market, it is not a problem for a

marginalization" that arise when licensing each other atcompany to exercise market control by patents alone.

monopoly prices (Shapiro 2001).

However, it can be a problem under the Antimonopoly Act

Another solution is a patent pool, in which multiplethatmultiplecompanies,

such

as

patentpools,

companies bring their licenses linked to the products withconsolidate patents and jointly exercise market power. As

each other, and have them licensed all at once. However,an aspect of competitive restriction of a patent pool is

as discussed in the next section, patent pools can be

there is a possibility that it can be used as a means ofused as a means of substantially restricting competition.

conspiracy, such as a price agreement or allocation of

Therefore, under Anti-Monopoly Act, only the essential

production, as several competing firms in the same

patents for the manufacture of products are permitted,

market come together to negotiate. In fact, in the case ofand licenses are granted to companies that do not

the Pachinko Machine Patent Pool in 1996, cartel

participate in the pool at low prices. The impact of suchactivities using the patent pool were recognized. Even if

patent pools on firms' innovation activities is discussed in

cartel activities are not carried out, it is still possible to use

the next section.

them as a means similar to a cartel by increasing theAnother problem with patent thickets is that patent

license royalty of pooled patents so that they can be soldholders who are not willing to use their patents (Non-only at a practically monopoly price. Furthermore, it isPracticing Entities: NPEs) exist. These include not only

possible to ease market competition by imposing various

companies that do research and development byconditions on licenses such as market segmentation,

themselves, but also companies that purchase patents

restriction of product prices, and entry restrictions. In fact,from other companies to exercise their rights. Among

according to an analysis by Lampe and Moser (2015),

thoseparticularly

which focused on patent pools conducted before World

problematic is the one in which they use their own patents

War II, and in which the Anti-Monopoly Act did not apply,and warn manufacturers implying injunction or a lawsuit

the number of patent rights and patent citations in theas injuria and they receive settlement money as licenseindustryroyalty as the main source of profit, called the PAE

significantly decreased, and competition in R&D among(Patent Assertion Entities: PAEs). They used to be called

companies declined.

companies,

what

will

becomeinwhichpatent

pools

were

conducted

patent troll. There is a lot of room for these companies to

Due to the above issues, in the United States, the FTC

work in the patent tickets, as they are likely to infringe(Federal Trade Commission: Before the Federal Tradeother companies' patents potentially. On the other hand,Commission (FTC) and the Department of Justice (DOJ)

there is no risk of infringement of other companies' patent

jointly issued guidelines for patent pooling in 1995, therights, and since license royalty itself is the main source

patent pool was almost never allowed. However, it hasof profit, the interests with manufacturers are different, so

come to be recognized as a means of eliminating patentparticipation in the patent pool for cross licensing andthickets in the ICT field, and the competition authorities

low-cost license royalty as mentioned above cannot be

have come to allow patent pools within a range that does

expected. Therefore, the possibility of litigation by PAE

not constitute a restriction of competition by providing

willsuch guidelines.

reducetheprofitabilityoftraditionallarge

manufacturers and hinders their commercialization ofThen, what is a patent pool that is not regarded as

products. Therefore, in the United States, voices haverestriction of competition? The Japan-U.S. Guidelines

been raised to restrict the exercise of patent rights

provide the following requirements: (1) a patent pool

centered around large-scale manufacturers. Since theconsisted only of essential patents for products in theamount of compensation for patent infringement has

relevant market; (2) patents in a complementary

been large, and such PAE activities have been active,

relationship;

63

(3)

agreement

concerning

FRAND

Part 2: Social Changes Associated with the Fourth Industrial Revolution

conditions (fair, reasonable and non-discriminatory)

such as 5G, it is possible to enhance convenience for

under

and

users by making companies' products compatible. In theindiscriminately with appropriate license royalties; and (4)4th Industrial Revolution in particular, it is assumed thatrealization of receiving a license of the pooled patents

all things will be connected to the Internet, and the merits

individually. The idea behind these requirements is toof standardizing interfaces for individual devices andprevent the possibility that allowing to pool patents othersoftware are considerable.

whichlicensesarelicensed

fairlythan essential patents or technologies in alternative

In the ICT field, standardization in which a plurality ofrelationships may increase the patent pool's market

enterprises decides a standard in advance has been

power.

frequently carried out since 90s. As for standardization, in

The degree to which such patent pools affect corporate

addition to the case in which the standardization is carried

R&D incentives is controversial. According to Joshi andout mainly by the organizations with strong public

Nerkar (2011), the creation of an Mpeg2 patent pool forcharacter such as International Telecommunication

an optical disc resulted in fewer patents for both licensors

Union

and

Standardization

licensees

However,

than

Shinbo,non-participating

Nagaoka

andcompanies.

Tsukada(ITU),

International(ISO),

Organization
and

for

European(2015)

Telecommunications Standards Institute (ETSI), theanalyzed the impact of the establishment of a patent poolformation of a forum in which companies voluntarily

on patent acquisition and R&D investment by companies,

gather to decide their own standards is observed. It can

the analysis of which includes the generations of

be said that the latter is an attempt to gain the benefits ofstandardization of optical discs such as DVDs and Blu-

network externality and at the same time to increase

ray discs: They found that both licensers and licensees ofmarket power through cooperation among multiple

the patent pool actively invested in R&D even after thecompanies.

establishment of the pool, and found a tendency to

It is debatable to what extent the government and otheracquire patents not only for technologies related to the

public institutions should intervene in the standardization

patent pool but also for technologies related to next-

process, or whether they should be left to the discretion

generation standards.

of companies. In general, it is desirable to establish a

An important problem associated with patent pools issingle standard under the leadership of a public

the existence of outsiders. For vertically integratedorganization, because there is a risk of a proliferation ofcompanies that do both R&D and product manufacturing,standards if it is left to the independent efforts of thethere are benefits to forming and participating in a pool ofenterprises. However, Cabal and Salant (2014), forpatents based on reasonable licensing royalties under

example, pointed out that it may be socially desirable to

FRAND conditions as long as they can make money inhave multiple standards as a necessary evil, since a

the product market. However, the benefits of participating

single standard by a public body may reduce corporatein the patent pool are small because the NPE is not

R&D incentives due to lack of competition, which in turnprofitable when the license royalty is low. Rather, it is

may reduce social welfare.

possible to increase profits by acting outside the patent

Because many ICT-related technologies are often

pool as a so-called outsider with essential patents forpatented,

in

decidingthetechnologies

set

in

manufacturing. In particular, after a company licensed

standardization, companies that have Standard Essentialfrom a patent pool has invested in production equipment,

Patents (Standard Essential Patents:SEP) are required

it is possible to drive the company into holdup by using

to commit to the FRAND condition called the FRAND

the injunction of production as a threat for patent

Declaration in advance in many cases. This is because

infringement.

without the FRAND Declaration, companies that produce

Competition authorities have accused outsiders ofcompliant products could be forced into holdups by

being anti-competitive, as this problem undermines theimposing high licensing royalties after incorporating theefficiency of patent pools. As with the PAE, policy tends

technology

to weaken the exercise of patents through the issues ofnegotiations. In order to avoid such risks, essential

outsiders.

patents

notintostandard

being

in

declaredtheasstandardization
FRAND

in

the

standardization negotiation is not basically adopted, as apolicy. In the case of standardization, there are cases in

4. Standardization and patent

which the companies that hold essential patents form a

In the ICT field, as seen in communication standards

64Chapter 3: The Fourth Industrial Revolution and Innovation in the ICT Field and Intellectual Property Rights

patent pool and license the patents collectively, and therethat do not have sufficient patent portfolios (Ceccagnoli

are cases in which each company negotiates a license.

and Gorman 2017). However, the free use of patent rights

Therefore, standardization is not equal to a patent pool.

is to restrict the original function of the patent, and, in the

Although the FRAND Declaration is indispensable forfirst place, it may hold back companies' R&D investment

the smooth development of standardization, there arein this field. It is also possible that some companies domany thorny problems that enterprises with essential

not necessarily offer significant patents for such Openpatents may have. In general, essential patents

Source Software (Hall and Helmers 2013).

indispensable to products are basic patents, and thevalue of the invention, as a whole, is high. However, theFRAND

Declaration

requiresreasonable

6. Conclusion

licensing

The intellectual property system is a system to giveroyalties, which makes it difficult to generate sufficientincentives for innovation activities by giving exclusive

returns from R&D investments. In addition, because

rights to enterprises that have made inventions. However,

FRAND technology can be used by anyone who pays a

as far as the present situation is concerned, it cannot belicense royalty, competition in the market will become

said that such functions are functioning properly in theintense and the product itself can become a commodity.

ICT field. Originally, due to the concerns about adverse

Both the low royalty rates and the intensification of theeffects on the product market caused by patent thickets

product market may hurt R&D profitability.

and PAE activities, centrally, large corporations have

Another recent concern is "holdout" or "reverse holdup"

been working to weaken patent rights since the 2000s,(Nagaoka 2019). This means that any company that has

and this has been carried out as a policy. While thesemade the FRAND Declaration will have to license

moves solve the problem of high license royalties andindiscriminately; the licensees take advantage of the fact

hold-up issues in the product market, they also force

that any of the licensees cannot be excluded. They willpatent-holding companies to license theirs at low prices,

not accept the license royalty negotiation in the first place,which may make it difficult for them to earn enoughor they attempt to delay the negotiation, thereby they

license income for their R&D investments. According to

avoid the payment of license royalties or force them into

the OECD report, R&D investment by large enterprises in

low-cost license royalty contracts. The actions taken by

the ICT hardware industry (Computer & Electronics,

licensees have also been influenced by the strengthening

Electronic equipment, Telecommunications) is on theof a series of restrictions on the rights of patent holders,decline, globally. 5) Similarly, according to Nagaokasuch as making it more difficult for patent holders to(2019), it has been confirmed that R&D investment in ICT

request an injunction by patents in order to prevent PAE

by Japanese companies is on a declining trend. It is notand outsiders. From this perspective also, in reality, forcertain whether such tendency is caused by the above

R&D companies, the market is becoming very difficult tofactors. However, despite the increasing importance of

make profits in proportion to their R&D activities.

innovation in the ICT field in the 4th Industrial Revolution,
there is a kind of paradoxical situation in which R&D

5. Open Source Software (OSS)

investment is declining in the ICT field. 6)

In order to avoid the risk of patent infringement and theIt cannot be denied that patent pooling, standardization

problem of loyalty stacking, globally famous known IT

andcompanies centered around Google and Apple, etc.have

indispensable tools for eliminating patent thickets in thestarted to go ahead with Open Source Software (OSS).

ICT field and avoiding problems of PAE and outsiders.

Open Source Software allows companies to use their

What kind of situation is socially desirable is a subject ofpatents free of charge if they agree, while participating

analysis for the future, and under such circumstances, it

companies are required to provide their patents free ofis necessary to discuss further what kind of innovation

charge. The provision of these mutually free rights ispolicy and intervention by competition authorities are

expected to facilitate entry into the product area by large

desirable.

enterprises and small- and medium-sized enterprises

65

the

accompanying

FRAND

DeclarationarePart 2: Social Changes Associated with the Fourth Industrial Revolution[References]
Cabral, L. & Salant, D. 2014, "Evolving technologies and standards regulation", International Journal of Industrial Organization, vol. 36,
pp. 48-56.
Ceccagnoli, W. M. & Forman, C. 2016, "Opening Up Intellectual Property Strategy: Implications for Open Source Software Entry by Startup Firms", Management Science, vol. 62, no. 9, pp. 2668-2691.
Cockburn, I.M. & MacGarvie, M.J. 2011, "Entry and Patenting in the Software Industry", Management Science, vol. 57, no. 5, pp. 915-933.
Cohen, W.M., Nelson, R.R. & Walsh, J.P. 2000, "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S.
Manufacturing Firms Patent (or Not)", NBER Working Paper No. 7552.
Dernis, H., Gkotsis, P., Grassano N., Nakazato, S., Squicciarini, M., van Beuzekom, B. & Vezzani, A. 2019, World Corporate Top R&D
Investors: Shaping the future of technologies and of AI and of AI. A joint JRC and OECD report, Office of the European Union, Luxembourg.
Haber, S.H. & Werfel, S.H. 2016, "Patent trolls as financial intermediaries? Experimental evidence", Economics Letters, vol. 149, pp. 6466.
Hall, B.H. & Helmers, C. 2013, "Innovation and diffusion of clean/green technology: Can patent commons help?" , Journal of Environmental
Economics and Management, vol. 66, no. 1, pp. 33-51.
Heller, M.A. & Eisenberg, R.S. 1998, "Can Patents Deter Innovation? The Anticommons in Biomedical Research", Science, vol. 280, no.
5364, pp. 698-701.
Joshi, A.M. & Nerkar, A. 2011, "When do strategic alliances inhibit innovation by firms? Evidence from patent pools in the global opticaldisc industry", Strategic Management Journal, vol. 32, no. 11, pp. 1139-1160.
Lampe, R. & Moser, P. 2013, "Patent pools and innovation in substitute technologies-evidence from the 19th-century sewing machineindustry", The Rand journal of economics, vol. 44, no. 4, pp. 757-778.
Nagaoka, S. 2019 "Licensing of standard essential
https://voxeu.org/article/licensing-standard-essential-patents

patents:

Hold-up,reversehold-up,and

ex-antenegotiation,"

Shapiro, C. 2001, "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting," Jaffe, Adam B., Lerner, Josha,
Stern Scott (eds.) NBER Book Series Innovation Policy and the Economy Vol. 1, MIT Press.
Shimbo, T., Nagaoka, S. & Tsukada, N. 2015, "Dynamic Effects of Patent Pools: Evidence from inter-generational competition in opticaldisk industry", RIETI Discussion Paper 15-E-132.
Sadao Nagaoka 2019, " 'The 4th Industrial Revolution' and Innovative Ability of Japanese Industry", RIETI Discussion Paper 19-P-020.

[Note]
1) This situation is also called "the Tragedy of the Anti-Commons" (Heller and Eisenberg 1996) The Tragedy of the Commons is aproblem caused by excessive consumption of shared resources. But the Tragedy of the Anti-Commons refers to a situation in which
resources are not used due to excessive claims of private rights.
2) This situation may hinder the entry of SMEs and start-ups that do not have a sufficient patent portfolio. In fact, in the software field,
some studies have shown that the technology sector with more patent rights has fewer new entrants (e.g., Cockburn and MacGarvie2011).
3) For example, in 2011, when Apple sued Samsung for infringement of smartphone patents, a series of counterclaims were filed by
Samsung for patent infringement against Apple, and lawsuits were filed in 10 countries, including Japan. A settlement was finallyreached in 2018.
4) However, in the sense of utilizing patents that have not been used by SMEs and large enterprises, the lawsuits have contributed tothe development of the licensing market. It is also pointed out that for SMEs with not enough complementary manufacturing assets,
it has a side for promoting innovation in terms of monetizing the results of R&D. (Haber and Werfel 2016).
5) Dernis et al. (2019), a report of OECD, analyzed the R&D investment amount of the top 2500 companies investing in R&D in theworld. According to the report, if we compare the R&D investment amount in 2012 and with that in 2016 by industries, we will come66

Chapter 3: The Fourth Industrial Revolution and Innovation in the ICT Field and Intellectual Property Rights

to understand that R&D investment in computer & electronics that are ICT-related is on the decline, although the amount is large.
The R&D investment amount is also declining in electronic equipment and telecommunications. Like this, that in the ICT-related
field, R&D investment by top companies is on the decline is the reality. On the other hand, we understand that R&D investment in IT
service, Purchasing, and Broadcasting is increasing. This shows that while hardware-related investment is declining in the ICTrelated sector, investment in software-related services using IT is increasing as a global trend.
6) The R&D investment is on the rise in the industries that are expected to advance the use of ICT field in the future, such as IT
services, automobiles, finance, and retail (including Amazon) that are leading open source software, and this trend can be seen as asign that the leaders of innovation are changing. In these industries, ICT technology itself does not depend on profits. Therefore,
there is a possibility that they will become innovation driver by acquiring large companies in the ICT industry.

67

Part 2: Social Changes Associated with the Fourth Industrial Revolution

68

[Part 2] Chapter 4: Economics of Causality and Heterogeneity
and Machine Learning
Takanori IDA v
Takunori ISHIHARA vi
Hideki SHIMADA vii[Summary]
Recently, "causal machine learning," which is a fusion of machine learning and econometrics, is rapidly
advancing. In my lab, Causal Forest is used multilaterally to examine the strengths and weaknesses of
causal machine learning. While maximizing the explanatory power, it can be used for a wide range ofapplications as it can be used not only for causality but also for heterogeneity. Its strength stems from theassumption of conditional independence of the data, which requires “Unconfoundedness.” Also, thedifficulty in deriving the marginal effect (deviation coefficient) makes it difficult to carry out the social
welfare analysis required for economics, and this is the weakness. This chapter discusses marginal
intervention effects, the economics of causality and heterogeneity. Also discussing is Causal Forest, amachine learning of causality and heterogeneity.
Notice: The English in this report was machine translated from the original Japanese before undergoing post-editing byhuman translators. In the event of any discrepancies between this translated document and the Japanese original, theJapanese original shall prevail.

v
vi
vii

Professor, Graduate School of Economics, Kyoto University
Researcher, Graduate School of Economics, Kyoto University
Doctor of Philosophy, Faculty of Agriculture, Graduate School, Kyoto University

69

Part 2: Social Changes Associated with the Fourth Industrial Revolution

1. Introductiondifficulty in deriving the marginal effect (deviation

Artificial intelligence has “weak artificial intelligence”

coefficient) makes it difficult to carry out the social welfareand “strong artificial intelligence.” We can say that theanalysis required for economics, and this is the weakness.

current artificial intelligence is generally weak. Concrete

Econometricexamples of weak artificial intelligence include tools thatheterogeneity have also emerged (called "Marginalcomplement humans, such as automatic driving andIntervention Effects") and are excellent for social welfare

Alpha Go. On the other hand, the development of strong

analysis with value judgments.

methods

that

exploitcausality

andartificial intelligence has yet to be seen. Robots like Astro

Section 2 discusses marginal intervention effects, theBoy and Doraemon are concrete examples of strong

economics of causality and heterogeneity. In Section 3,

artificial intelligence, but they are still in science fiction.

we discuss Causal Forest, a machine learning of

Weak artificial intelligence and "machine learning" cancausality and heterogeneity.

be considered almost synonymous. It can be said that the"Singularity" in which the artificial intelligence of

2. Economics of Causality and Heterogeneity -machines exceeds the natural intelligence of humans is

Marginal Intervention Effects -not on this line. There are many kinds of machine learning.

2-1 Introduction

ExamplesandOne of the main roles of economics is the evaluation of"unsupervised learning." What is useful in society now ispolicies and the prediction of their effects (Heckman andsupervised learning. In supervised learning, it is

Vytlacil, 2005; Heckman, 2010). To this end, economics

necessary for humans to prepare correct answers. There

has traditionally taken a structural estimation approachis also a way to discern "classical machine learning" fromusing models built from economic theory, but this"deep learning." Deep learning has brought about

approach has been criticized for the strength ofinnovation in image recognition and speech processing,assumptions and the complexity of estimation methods.

while classical machine learning is more effective inOn the other hand, the program evaluation approacheconomic data.

using experiments and quasi-experiments is widely used

Next,

includelet's"supervised

withas a policy evaluation method because it can identify the

econometrics. Both are applied statistics, but theeffects of treatments while ensuring the transparency ofdifferenceemphasizes

the method. However, there is criticism that the program

nonparametric estimation and econometrics emphasizes

evaluation approach is not effective in predicting policy

parametric estimation. Machine learning minimizes

effects. A way to compensate for both of theseprediction errors and is excellent in explanatory power,

shortcomings is to use the marginal treatment effectand econometrics (causal inference) is excellent in(MTE: Marginal Treatment Effects). MTE is interpreted as

causal inference. There are differences between machine"the effect of treatment by people who are indiscriminate

learning, in which training data and test data are used

between receiving and not receiving intervention." MTE

separately to suppress overlearning, and econometrics,

can be used to identify the impact of policy changes onin which hypotheses are tested on the basis of asymptotic

the outcomes of interest. This effect is called the effects

nature.

of policy-related treatments (PRTE: It is called "Policy

iscomparethat

However, themachinelearning"

machinelearning

learning

fusion of machine learning andRelevant Treatment Effects," and it enables prediction of

econometrics has been progressing rapidly in recent

policy effects.

years. The advent of "Causal machine learning." There is

Another advantage of estimating

MTE is thata flow from "Random Forest" to "Causal Forest"

heterogeneity of effects can be verified. Heterogeneity indiscussed in Section 2. It is expected that the Nobel Prize

this context means that the effect is different for eachin economics will be awarded soon. In my lab, Causal

individual or group. The heterogeneity of treatment

Forest is used multilaterally to examine the strengths andeffects

weaknesses

Whileevaluation. For example, the Average Treatment Effectmaximizing the explanatory power, it can be used for a(ATE: Even if there is no treatment effect when assessedwide range of applications as it can be used not only for

by Average Treatment Effects, the influence of "effective"

causality but also for heterogeneity. Its strength stems

and "ineffective" may only be annihilated each other. At

from the assumption of conditional independence of thethis time, it cannot be said that policy intervention isdata, which requires “Unconfoundedness.” Also, theineffective. It is also possible that to realize the targetingofcausalmachinelearning.

70

providesimportant

implications

forpolicyChapter 4: Economics of Causality and Heterogeneity and Machine Learningof policy interventions based on observable attributes ofconditioned

effects

hand,variables𝑈 . Since𝑈 ~ Unif[0, 1], individuals whose𝑢 isheterogeneity of intervention effects is not always

close to 0, for example, are more likely to receive

explained by observable attributes alone. For example,

intervention with respect to unobservable variables. Like

the impact of an intervention may vary depending on thethis, the MTE enables the inference of the effect of an

preference for the intervention and the cost of receiving

intervention according to the "acceptability of thethe intervention. However, these attributes are often notintervention." In addition, MTE refers to individuals who

observable. It is MTE that makes it possible to verify theare 𝜇 (𝑧) = 𝑢 . In short, it is "indiscriminate between

heterogeneity of intervention effect by such unobservable

receiving and not receiving intervention." It can also be

factor. In other words, MTE can also be interpreted as "ainterpreted as the effect of individual intervention.

cantreatmentbeeffectexplained.

conditioned

On

the

by

other

observable

and

by

observable 𝑋 andunobservable

Then, how can we guess MTE? In Heckman andunobservable factors."

Vytlacil (1999, 2005), the local manipulated variable
method (LIV: Local Instrumental Variables) is proposed.
LIV

2-2 What is MTE?

isdefinedastheoutcomeofderivative

conditioned𝑃(𝑍) = 𝑝and has been shown to be:

The observed outcome 𝑌 is expressed as 𝐷 with orwithout of a policy intervention. However, to receive
intervention is𝐷 = 1and not to receive intervention is𝐷 =𝜕 𝐸( 𝑌 ∣ 𝑃(𝑍) = 𝑝, 𝑋 = 𝑥 )= MTE(𝑥, )𝜕𝑝0. The observed outcomes are:
𝑌 = 𝐷𝑌 + (1 − 𝐷)𝑌In other words, the MTE can be determined
nonparametricallyby

Like these. (𝑌 , 𝑌 ) are the potential outcomes and are

differentiating 𝐸( 𝑌 ∣ 𝑃(𝑍) = 𝑝, 𝑋 = 𝑥 ) by the tendency

determined as follows:score. Figure 2-4-1 below shows an example ofestimated MTE. In this example, the MTE is on the
decline with respect to𝑈 . That is, individuals who are

𝑌 = 𝜇 𝑋, 𝑈 , 𝑗 ∈ {0, 1}

more susceptible (𝑢 is closer to zero) to an interventionof an unobservable variable are more likely to benefit

Where 𝜇 is an arbitrary function, 𝑋 is an observablefrom the intervention. On the other hand, individuals whovariable, and𝑈 is an unobservable variable.
The MTE's analytical framework determines whether

have bigger 𝑢 and less susceptive to the intervention

an individual will receive intervention. This choice ishave smaller effect of the intervention. In particular, thedetermined as follows:

sign of the intervention effect has changed from positive
to negative at around 𝑈 = 0.8 . Thus, estimating MTE

𝐷 = 1[𝐷∗ ≥ 0], 𝐷∗ = 𝜇(𝑍) − 𝑈

allows for discussion of the heterogeneity of intervention(1)

effects.
In equation1[⋅] (1) is an indicator function and𝜇 is an
2-3 The Application of MTE

arbitrary function. 𝑍 is an observable variable andCarneiro,contains𝑋. However, among𝑍, it is assumed that there is

Heckman,and

Vytlacil(2010,

2011)

an exclusion variable not included in 𝑋 . 𝑈 are an

examined the effects of college entrance on wages byunobservablevariableestimating parametric or semi-parametric MTE. As aand(𝑈 , 𝑈 )and(𝑈 , 𝑈 ) are assumed to be independent

result, we perceived declining MTE. Thus, individualsof Z when conditioned by 𝑋 . In here, the propensitywith fewer obstacles for college entrance tend to showscore 𝑈 is expressed as [0, 1] if 𝑃(𝑍) is normalized

higher effect on wages with respect to unobservableas 𝑃(𝑍) ≡ Pr( 𝐷 = 1 ∣ 𝑍 ) = 𝜇 (𝑍) so that it is uniformly

variables. In addition, the marginal policy-related

distributed in.

treatment effects that can detect marginal effects of policy

continuouschanges under the weak support condition (MPRTE:

Under the above setup, the MTE is defined as follows.

"Marginal Policy Relevant Treatment Effects" is defined
to measure the marginal effects of policies that promote

MTE(𝑥, 𝑢 ) ≡ 𝐸( 𝑌 − 𝑌 ∣ 𝑋 = 𝑥, 𝑈 = 𝑢 )advancement to university.
In an earlier study, Cornelissen et al. (2018), under theThus, the MTE represents an intervention effect71Part 2: Social Changes Associated with the Fourth Industrial Revolution

Figure 2-4-1 Sample Estimation of MTE

problem consciousness in which there is no consensus

sponsored Head Start preschool education program foron the impact of a child care program on child outcomes,

low-income and other circumstantially disadvantaged

estimated MTE and pointed out that heterogeneity ofgroups. The authors use a randomized-controlled trial

effects due to observable and unobservable variables iscalled the Head Start Impact Study to examine the effectthe factor. In particular, the MTE function shows that theof the program on test scores. Then, the authors consider

more difficult an individual is to receive a child carethe cost-benefit analysis of marginal policy changes. A

program with respect to unobservable variables, thedifficulty with this calculation is that many of the infants

more effective the child care program is. In addition,

assigned to the intervention group and were not able to

PRTE is derived from the estimated MTE to simulate thereceive the program, had received different preschool

effects

education. Taking this into account, the authors showedof implementing policies

to increase theparticipation rate in child care programs.

that marginal fiscal spending depends on MTE.

In addition to the benefits of policy intervention, theFinally, we introduce Kowalski (2018) who examines

costs of intervention are also important for policy.

the heterogeneity of intervention effects using economic

Eisenhauer et al. (2015) proposed a method forexperimental data. This author used an experimentidentifying and estimating costs by applying the MTE

conducted in the 1980s to examine the negative aspects

framework, even when there is no direct information on(overdiagnosis) of mammography on health. In the same

costs. Recall that MTE can be interpreted as an individual

experiment, women assigned to the intervention groupintervention effect in which it is "indiscriminate between

were given the opportunity to take x-rays. However,receiving and not receiving intervention." In short, forwomen in the intervention group do not have to have x-

such individuals, the benefits of the intervention are equalrays, and women in the control group can have x-rays, soto the costs of receiving the intervention. Using thisthe experimental design is bilateral disapproval. In suchproperty, Eisenhauer et al. (2015) proposed a method ofexperimental designs, individuals are classified into threeidentifying the costs of intervention, and estimated thetypes. First, individuals assigned to either group, and are

effects of college education on wages, having the costs

always involved (x-rays): They are called always takers.

of college education, and the total surplus.

The next type of person is called a Never Taker: He/she

As one of the studies that used MTE for the predicting

will, in any assignment, never take an intervention. Finally,

policy effects, we have Kline and Walters (2016). The

there are compliers who receive intervention whenstudy examined the effectiveness of a U.S. government-

assigned to the intervention group and do not receive it

72

Chapter 4: Economics of Causality and Heterogeneity and Machine Learningwhen assigned to the control group. Kowalski (2018),

that brings Random Forest, one of the machine-learning

under the MTE framework, assumes a monotonicity

methods, into the context of causal reasoning. Therefore,

about 𝑈 for the expected value of potential outcome,when introducing CF, it is necessary to supplement

conditioned𝑈 . In doing so, he proposes a method ofRandom Forest and decision trees. Here, the decision

determining the bounce of intervention effects, andtree and Random Forest will be introduced as atesting for the existence of heterogeneity in intervention

supplement.

effects among these types. The results showed that

Random Forest is an ensemble method applied toAlways Taker had at least 3.5 times more overdiagnosis

decision trees. In the decision tree, a classification tree isthan Complier.

used for the purpose of classification, and a regression
tree is used for the purpose of regression such as

3. Causal and Heterogeneous by Machine Learning -prediction of numerical values. The algorithm for creating

Causal Forest -these decision trees is CART (Classification and3)-1 Introduction

Regression Tree: Breiman et al. 1984) is often used. In

In recent years, several economic studies have usedthe decision tree, a prediction model is constructed bymachine learning techniques to predict intervention

dividing the data into two parts a plurality of times starting

effects

andfrom the vertex of the tree. In the following, the term

environmental information, and to analyze the predicted

decision tree refers to a regression tree based on theintervention effects. Machine learning techniques were

CART algorithm.

conditionedbymultiple

attributeoriginally used to predict𝑥results using multiple attribute

Given the current set of training data𝑖 = 1, … , 𝑁, underinformation𝑦. However, in recent years, there has been a

the condition of{𝑌 , 𝑋 } ∈ ℛ × {0, 1} , consider a case in

great deal of research not only on predicting results, butwhich decision tree is constructed. Here,𝑌 is the response

also on using machine learning for causal reasoning (Imai(or the result variable)𝑋 , and is assumed to represent aand Ratkovic, 2013, etc.). Among them, there arecharacteristic quantity (or a covariate). The goal of theremarkable developments in tree-based methods suchdecision tree is to construct a model that predicts theas CART and Random Forest. Athey and Imbens (2016)

conditional expectation of the response𝑋 = 𝑥conditioned

introduced a tree-based approach for causal reasoning,by 𝑌 . The conditional expectation value 𝑌 of theand Wager and Athey (2018) developed the approach as

response𝜇(𝑥)to be predicted is expressed as follows.

a causal forest, revealing that the conditional effects
predicted by the approach have agreement and𝜇(𝑥; Π) = 𝔼[𝑌 |𝑋 = 𝑥; Π]

asymptotic normality under some conditions.
Economic studies in various areas, such as energy
conservation

studies,poverty

and

labor

In order to construct a model for predicting thestudies,

above 𝜇(𝑥) , in the decision tree, dividing data isdevelopment studies, and tax studies, use Causal Forest

necessary to construct a model. A vertex that has not yet

to predict conditional mean intervention effects and to

been split is called a parent node, and the lowest

verify the characteristics of their distribution and what

node𝑅 or𝑅 , 𝑅 is called a leaf or final node. A point𝑐 , 𝑐 iscovariates explain their heterogeneity (Carter, Tjernström,

determined as shown in Figure 2-4-2, and the data is

and Toledo, 2019; De Neve et al., 2019; Farbmacher,

divided according to the point. When the number of data

Kögel and Spindler, 2019; Hoffman and Mast, 2019;

in the leaf is fewer than a certain number, the division is

O'Neill and Weeks, 2018). In addition, energy-saving

stopped. Finally, for the predicted value 𝜇̂ in eachstudies and poverty and labor studies evaluating single

segmented area, a mean squared error (MSE) is often

intervention effects have demonstrated the utility ofused as a criterion for a division point described as。

targeting in terms of who should be intervened in through𝑐 , 𝑐 as an average of responses data in the area. MSE

illustrations using conditional average intervention effects

is defined as below:(Bertrand et al., 2017; Davis and Heller, 2017; Knittel andStoller, 2019).
𝑀𝑆𝐸 =3)-2 What is Causal Forest?
Wager and Athey (2018)'s Causal Forest (hereinafterreferred to as CF) is a non-parametric estimation method

73

1
𝑁

𝑌 − 𝜇̂
∈Part 2: Social Changes Associated with the Fourth Industrial Revolution

Figure 2-4-2 Example Decision Tree

Here,𝑗 ∈ {1, . . . , 𝐽}shows the number of divided areas isdivision point to perform optimum division. Moreshown, and indicates the number of data #(∙) . In

specifically, it is performed by considering the values ofaddition,𝜇̂ shows an average of responses in a divided

all the feature amounts written as 𝑋 , … , 𝑋 and all the

area𝑗.

division points𝑐with respect to the feature amounts, andLike, in the decision tree, the division point isselecting the feature amount and the division point for

determined by selecting the one with the smallest MSE

creating a tree having the minimum MSE.

as the threshold value. In practice, regarding all the𝑅 , theDecision trees can cope with complex structures in the

MSE calculation is performed by the recursive twodata by deepening the tree. However, it is also known thatdivision method, because the calculation volume of thethe prediction results of regression and classification by

above MSE to consider requires an enormous number ofdecision trees vary widely. Therefore, the idea of reducing

calculations. This method does not focus on all thethe variance by averaging a plurality of decision trees isdivisions as described above, but do so only on a specificRandom Forest, for the purpose of driving down the74

Chapter 4: Economics of Causality and Heterogeneity and Machine Learning

dispersion of prediction of this decision tree.
The

RandomForestalgorithm

takes

In addition, the following overlapping assumption

samples𝐵 of𝑁 trees from the training data of each size

(Overlap) is used, because both the person assigned toof 𝑍 ∗ , using a bootstrap method. With respect to thethe intervention group𝑋 = 𝑥and the person assigned to

extracted sample𝑍 ∗ ,𝑝 pieces of characteristic quantities

the control group𝑊 = 1must be included regarding theare randomly extracted from the characteristic quantities

specific feature quantity𝑊 = 0.

of𝑚 pieces. Then, from the𝑚 pieces of variables having
the highest correlation with the response𝑌 is extracted

0 < 𝑃𝑟(𝑊 = 1|𝑋 = 𝑥) < 1

from the characteristic quantities. Then, the sample𝑍 ∗ isdivided into two on the basis of a certain threshold value

Under these assumptions, the following conditionalso as to reduce the least squares errors. This division isrepeated until the minimum node size of𝑛average treatment effect (CATE) is estimated.

is reached.

The final prediction is made by integrating the prediction
τ(𝑥) = 𝔼 𝑌

results of the final𝐵pieces of decision tree. In the case of

( )

−𝑌

( )

|𝑋 = 𝑥regression, this integration is done by taking the averageof each decision tree. Random Forest also has an

In CF, as in the case of usual causal inference, theindicator called Variable Importance that reports the

purpose is to extrapolate τ(𝑥) under the above 2

importance of the variables used to grow the forest. This

assumptions. The basic algorithm is like the CART

indicator shows how much the division by the feature

decision tree and RF, but it needs to be modified because

quantity contributes to the regression to the response.

the goal is to get an estimated𝜇̂ (𝑥) of the CATE rather

Causal Forest introduced the idea of the Random

than an estimatedτ(𝑥)of the response.

Forest algorithm to causal inference. The Causal Forest,

Also, in a normal decision tree or RF, a sample on hand

like the Random Forest, generates multiple causal trees

is divided into training data for constructing a model andand combines the results to produce a predictedconditional

intervention

effect.

In

Causaltest data for evaluating the model. On the other hand, one

Forestof the features of the causal tree of Athey and Imbens(hereinafter referred to as CF), a model is constructed(2016) and the CF of Wager and Athey (2018) is that thefrom a plurality of trees in the same manner as in ordinary

training data is further divided into 2 parts by the method

Random Forest (hereinafter referred to as RF). The goal

named Honesty. It is known that by carrying out thisof RF is to predict using response𝑌 and feature quantity𝑋 .

Honesty, the predicted 𝜇̂ (𝑥) or 𝜏̂ (𝑥) satisfies properties

On the other hand, the purpose of CF is to perform causal

such as coincidence and asymptotic normality. In

inference using, the allocation variables𝑌 of intervention

Honesty, one data is used to select the split points of thein addition to the response𝑋 and the feature quantity𝑊 .

model and the other data is used to estimate theIn general, the following conditional independentassumption(Unconfoundedness)ofpredicted values.

potential

The tree which constitutes CF is called Causal Tree.

consequences is required for causal inference using

Now, consider estimating Causal Trees for a sample𝒮 .

observational data.

Here,𝒮 , 𝒮 represent the test data and the training data
respectively, and 𝒮
𝑌

( )

,𝑌

( )

represents the data used for

estimating the effect of the intervention. The CATE on a

∥ 𝑊 |𝑋

leaf,Π, of Causal Tree,ℓ(𝑥; Π), is expressed as follows:τ(𝑥; Π) ≡ 𝔼[𝑌 (1) − 𝑌 (0)|𝑋 ∈ ℓ(𝑥; Π)] = μ(1, 𝑥; Π) − μ(0, 𝑥; Π)Here, μ(𝑤, 𝑥; Π) is arbitrary about 𝑤 ∈ 0, 1 for any μ(𝑤, 𝑥; Π) ≡ 𝔼[𝑌 (𝑤)|𝑋 ∈ ℓ(𝑥; Π)] . This estimated quantity isexpressed as follows.

75

Part 2: Social Changes Associated with the Fourth Industrial Revolution𝜏̂ (𝑥; Π) =1|{𝑖: 𝑊 = 1, 𝑋 ∈ ℓ(𝑥; Π)}|

Y −
{:

,

∈ℓ( ; )}

1|{𝑖: 𝑊 = 0, 𝑋 ∈ ℓ(𝑥; Π)}|

Y
{:

,

∈ℓ( ; )}

That is, the CATE in a leaf ofΠof Causal Tree,ℓ(𝑥; Π), is determined as the difference between the mean of theintervention group's response in the leaf and the mean of the control group. In estimating the CATE in these leaves,
it is necessary, of course, to grow Causal Trees.
As in the case of the CART decision tree, it is necessary to consider searching for the division point where theMSE of the Causal Tree is the smallest and performing the division. Here, the MSE for intervention effects isexpressed as:

𝑀𝑆𝐸 (𝒮 , 𝒮, Π) ≡1#(𝒮 )𝜏 − 𝜏̂ (𝑋 ; 𝒮

, Π)

∈𝒮

In addition, unlike the usual CART, it is not possible to actually observe each subject of𝜏 . Therefore, the above
MSE cannot be used as it is. Therefore, it is necessary to estimate the MSE. The estimates of the intervention
effects of MSE are as follows (see Athey and Imbens (2016) for a detailed discussion of this part).

𝑀𝑆𝐸 (𝒮 , 𝒮, Π) ≡1#(𝒮 )𝜏 − 𝜏̂ (𝑋 ; 𝒮

, Π)

∈𝒮

Therefore, to develop Causal Tree, division is made at

Tjernström, and Toledo (2019), De Neve et al. (2019),

the division point where the dispersion of CATE in the

Farbmacher, Kögel and Spindler (2019), Hoffman andtraining data is maximized.

Mast (2019), and O'Neill and Weeks (2018), which

The CF is a result of creating a plurality of Causal Trees

estimate the heterogeneity of intervention effects in theand integrating the results. In this explanation, the CATE

context of labor policy and tax behavior. The latter

determined by the CF is explained as the difference

empirical studies include Bertrand et al. (2017), Davis

between the responses of the intervention group and theand Heller (2017),and Knittel and Stolper (2019), which

control group in the same leaf. However, in the actual CF

seek for heterogeneity in the effects of interventions in thealgorithm, it is also possible to estimate the effect of thecontext of labor policy and electricity-saving behavior andintervention using the predicted propensity scorethen target who should be involved.

(Propensity Tree). In Athey, Tibshirani and Wager (2019),

In particular, Knittel and Stolper (2019) examined theRandom Forest is generalized as (generalized) Random

heterogeneity and targeting of intervention effects in a

Forest, using the generalized moment method. An

multi-faceted manner using a wealth of information, andestimation package for this approach has also been

the author believes that CFs are useful for future

published as the grf package of R (Tibshirani et al. 2020).

empirical research. For this reason, Knittel and Stolper(2019) will be introduced as a study example of the

3-3．The Application of Causal Forest

applications of CF being used as demonstration research.

We will introduce demonstration research using this CF

Knittel and Stolper (2019) verified the effects of Homealgorithm. The authors believe that use of CFs in

Energy Report

empirical studies to be broadly divided into (1) studies

more than 900,000 households in their Home Energy(HER) on electricity-saving behavior of

used to estimate conditional mean intervention effects

Report. This HER provides information on how muchand to verify the characteristics and heterogeneity of theconsumers consume electricity and how their neighbors

distribution of intervention effects, and (2) studies used toconsume it, as well as how to conserve energy.

estimate conditional mean intervention effects and to

They first calculate the average intervention effect oftarget them from the perspective of "who should be

HER per month. According to the calculation, theintervened?"intervention effect by HER was - 0.085 kWh (- 1%).

The former type of empirical studies include Carter,

Subsequently, in order to examine the heterogeneity of76

Chapter 4: Economics of Causality and Heterogeneity and Machine Learning

Figure 2-4-3 The distribution of predicted intervention effects
Figure 7, Knittel & Stolper. (2019)

intervention

effects,

theeffectofheterogeneous

the other without a power-saving effect (Increasers).

intervention is estimated by CF using 13 characteristic

Then, the difference in the attributes of these groups wasquantities such as electricity consumption, home asset

examined (Figure 2-4-4).

value, site area, and income. The estimation results are

From Figure 2-4-4, it can be seen that there areshown in Figure 2-4-3.

differences in many attributes between households that

Figure 2-4-3 shows the distribution of heterogeneous

averagely take power-saving actions and households

intervention effects from year 1 to year 3. From this, it canthat do not. In particular, there is a marked difference

be seen that 1) the heterogeneity of the intervention effectregarding the past Baseline Usage. This indicates thatcan be observed even within the same fiscal year, and 2)

the past Baseline Usage of the households that takethis heterogeneity can also be observed after the second

power-saving actions, on average, is considerably higher

year and the degree of dispersion of the effect isthan that of households that do not do it.

expanding. Specifically, as a result of the intervention in

Thus,

after

mentioning

theheterogeneityofthe first year, there is a large peak around the intervention

intervention effects, they focus their analysis on targeting.

effect - 10 kWh, and there is also a peak around the effectBy targeting, they aim to increase the effectiveness of

0. In the second and third years, the peak observed in thetheir interventions by limiting people to those who are

first year gradually expanded outward. From this, it canmore power-saving by HER. Specifically, considering the

be seen that households that were affected by thecost of HER, they consider the case of maximizing theintervention learned about power saving over time andpower-saving effect. They also perform simulations,started to take more power-saving actions, but about 18%

assuming that a marginal cost of electricity generation isof households that were not affected by the intervention$ 7. The distribution of net HER benefits for each year is

did not start to save power, but rather increased theirshown in Figure 2-4-5.

power consumption.
Next, in their analysis, the group was divided into
groups: one with a power-saving effect (Reducers) and77

Part 2: Social Changes Associated with the Fourth Industrial Revolution

Figure 2-4-4 Attributes Comparison of "Reducers" and "Increasers"
Figure 8, Knittel & Stolper. (2019)

Figure 2-4-5 The distribution of Net HER Benefits
From Panel A in Figure 10, Knittel & Stolper. (2019)78

Chapter 4: Economics of Causality and Heterogeneity and Machine Learning

Figure 2-4-5 shows that if you send an HER toabout 73 percent of households will be allocatedeveryone, the total surplus from HER is $ 5.5M in year 1,

interventions, with a total surplus of $ 10.4M, which is$ 9.1M in year 2, and $ 11.5M in year 3: You will see that

expected to increase by 14 percent. Finally, for the third

as time goes by the total surplus will increase. This

year, with similar targeting, the total surplus will becorrespondsof$ 13.0M, up 12 percent. If the effect of the intervention

intervention effects over time. Next, we consider the case

to

the

increasing

heterogeneity

can be predicted in advance, it can be seen that the totalof targeting. Considering that interventions are targetedsurplus can be improved by targeting.

only to households that exceed marginal costs,

Like this, Knittel and Stolper (2019) demonstrated theapproximately 72% of households receive HER at year 1.

utility of targeting after considering heterogeneity, using

At this time, the total surplus is $ 6.4M, which is 14% more

the CF approach to examine the heterogeneity ofthan the total surplus of the intervention when comparing

intervention effects based on data from actual social

to the case of holistic intervention. In the second year,

experiments.

[References][1]
Athey, S., and G., Imbens. (2016). Recursive partitioning for heterogeneous causal effects. Proceedings of the National Academyof Sciences, 113(27), 7353-7360.
[2]
Athey, S., J., Tibshirani, and S, Wager. (2019). Generalized Random Forests. The Annals of Statistics, 47(2), 1148-1178.
[3]
Bertrand, M., B., Crépon, A., Marguerie, and P, Premand. (2017). Contemporaneous and Post-Program Impacts of a Public Works
Program: Evidence from Côte d' Ivoire. World Bank.
[4]
Breiman, L., J., Friedman, C.J., Stone, and R.A, Olshen. (1984). Classification and regression trees. CRC press.
[5]
Carneiro, P., Heckman, J. J., and Vytlacil, E. (2010). Evaluating marginal policy changes and the average effect of treatment forindividuals at the margin. Econometrica, 78(1), 377-394.
[6]
Carter, M. R., E., Tjernström, and P., Toledo. (2019). Heterogeneous impact dynamics of a rural business development program in
Nicaragua. Journal of Development Economics, 138, 77 98.
[7]Carneiro, P., Heckman, J. J., and Vytlacil, E. J. (2011). Estimating marginal returns to education. American Economic Review, 101(6),2754-81.
[8]
Cornelissen, T., Dustmann, C., Raute, A., and Schönberg, U. (2018). Who benefits from universal child care? Estimating marginal
returns to early child care attendance. Journal of Political Economy, 126(6), 2356-2409.
[9]
Davis, J.M., and S.B, Heller. (2017). Rethinking the benefits of youth employment programs: The heterogeneous effects of summer
jobs. Review of Economics and Statistics, 1-47.
[10] De Neve, J.E., C., Imbert, J., Spinnewijn, T., Tsankova, and M, Luts. (2019). How to Improve Tax Compliance? Evidence from
Population-wide Experiments in Belgium. Evidence from Population-wide Experiments in Belgium (May 05, 2019). Saïd Business
School WP, 7.
[11] Eisenhauer, P., Heckman, J. J., and Vytlacil, E. (2015). The generalized Roy model and the cost-benefit analysis of social programs.
Journal of Political Economy, 123(2), 413-443.
[12] Farbmacher, H, H, Kögel, and M, Spindler. (2019).
[13] Heckman, J. J. (2010). Building bridges between structural and program evaluation approaches to evaluating policy. Journal of
Economic literature, 48(2), 356-98.
[14] Heckman, J. J., and Vytlacil, E. J. (1999). Local instrumental variables and latent variable models for identifying and bounding
treatment effects. Proceedings of the national Academy of Sciences, 96(8), 4730-4734.
[15] Heckman, J. J., and Vytlacil, E. (2005). Structural equations, treatment effects, and econometric policy evaluation 1. Econometrica,
73(3), 669-738.
[16] Hoffman, I., and E, Mast. (2019). Heterogeneity in the effect of federal spending on local crime: Evidence from Causal Forests.
Regional Science and Urban Economics, 78, 103463.
[17] Imai, K., and M., Ratkovic. (2013). Estimating treatment effect heterogeneity in randomized program evaluation. The Annals ofApplied Statistics, 7(1), 443-470.
[18] Kline, P., and Walters, C. R. (2016). Evaluating public programs with close substitutes: The case of Head Start. The Quarterly Journalof Economics, 131(4), 1795-1848.
[19] Knittel, C.R., and S, Stolper. (2019). Using Machine Learning to Target Treatment: The Case of Household Energy Use (No. w26531).
National Bureau of Economic Research.
[20] Kowalski, A. E. (2018). Behavior within a clinical trial and implications for mammography guidelines (No. w25049). National Bureau
of Economic Research.
[21] O'Neill, E., and M, Weeks. (2018). Causal Tree Estimation of Heterogeneous Household Response to Time-Of-Use Electricity Pricing
Schemes. arXiv preprint arXiv: 1810.09179.

79Part 2: Social Changes Associated with the Fourth Industrial Revolution[22] Tibshirani, J., S., Athey, R., Friedberg, V., Hadad, D., Hirshberg, L., Miner, E., Sverdrup, S., Wager, and M., Wright. (2018). Package'grf'.
[23] Wager, S., and S., Athey. (2018). Estimation and inference of heterogeneous treatment effects using Random Forests. Journal of
the American Statistical Association, 113(523), 1228-1242.

80

[Part 2] Chapter 5: Artificial Intelligence and Economic Growth
Koichi FUTAGAMI viii

[Summary]
This paper describes the process of automation by artificial intelligence, and shows the importance of
whether the relationship between tasks that have been automated and tasks that have not been
automated is complementary or alternative. When automation advances completely, economic growth issustained, but when automation is incomplete, sustained economic growth stops, and in the worst case,the economy shrinks. The labor share does not continue to rise when automation is incomplete, but when
automation is complete and labor is no longer needed, if the relationship between tasks is complementary,
the labor share tasks will become 1 in the end. The reason that even though there are few tasks that use
labor and that the share is 100% is because the labor input to non-automated tasks is essential toautomated machine tasks.
Notice: The English in this report was machine translated from the original Japanese before undergoing post-editing byhuman translators. In the event of any discrepancies between this translated document and the Japanese original, theJapanese original shall prevail.

viii

Professor, Graduate School of Economics, Osaka University

81

Part 2: Social Changes Associated with the Fourth Industrial Revolution

1. Introduction

holds for technological progress is that it increases labor

Since the Industrial Revolution, which began in the

productivity. In other words, as technology advances,eighteenth century, the process by which machines

more output is obtained from the same labor input, which

replace human labor has been going on in waves. The

is called labor-augmenting technical progress. This viewprocess of replacing labor with machines has advancedis the same as the endogenous growth model of Paulthrough the first Industrial Revolution based on Watt's

Romer, who won the 2018 Nobel Prize in Economics.

steam engine, the second Industrial Revolution in the

However, as can be seen from a little consideration, there

early twentieth century based on mass production using

should be a view that even if capital investment is theelectricity, and the third Industrial Revolution based onsame, more output will be obtained as technology

electronics, which began in the 1970s. Ricard, anadvances (capital-increasing technological progress), buteighteenth-century classical economist, wrote in his bookthe reason for not doing so is the fact that a balanced“On the Principles of Political Economy, and Taxation” asgrowth path exists only in the case of labor-augmenting

follows:

technological progress 2). As its name suggests,"The opinion of the working class that the use ofbalanced growth is a path through which all economic

machinery is often detrimental to their interests is notvariables increase at the same growth rate. Economic

based on prejudice or error, but on the right principles ofgrowtheconomics."

technological progress, because the capitalist economy

It is predicted that wages will decline and the labor share

has experienced sustained growth for more than two

will decline as labor becomes unnecessary as thecenturies, and the mathematical model of economic

replacement of human labor with machines advances.

growth theory has provided a clean solution. It has also

Many workers may also lose their jobs.

supported the view of labor-augmenting technologicaltheoryhas

focusedonlabor-augmenting

However, the replacement of human labor with

progress that it was consistent with the stylized facts

machines did not completely eliminate human labor.

about economic growth pointed out by Kaldor. Among the

Acemogul and Restrepo explain this as follows 1). Old

stylized facts, the distribution relation is particularly

types of tasks are replaced and superseded by machines,

important in relation to the following discussion. Underand in the process new tasks are created that have alabor-augmenting technological progress, the capitalcompetitive advantage over labor. It is true that horses

share and the labor share will remain constant at thewill lose their positions when carriage is replaced with rail.

steady state of the economy. This is consistent with the

But unlike horses, humans will be able to take on the newstylized facts.

task as operators. Also, when a machine is introduced, aThen, can the fourth Industrial Revolution, which ismachine operator, who performs tasks complementary to

based on artificial intelligence, be viewed as labor-

the machine, is required. Even in the third Industrial

augmenting technological progress? Big Data-based

Revolution, the introduction of industrial robots andartificial intelligence can make a lot of work unnecessary.

computers requires programmers and digital workers to

Customer service at business hotels is a typical example.

perform complementary tasks. That is to say, it isAutomated driving could also replace truck drivers andexpected to be very important whether the work done bytaxi drivers. Perhaps a task based on a routine will behumans against machines, or what they call tasks, is in

replaced by artificial intelligence, but some tasks are notan alternative or complementary relationship.

based on a routine and therefore cannot be easily

Economic growth theory has carried out economic
analysesconsidering

Economic

growthsuchtheoryalternativehas

replaced by artificial intelligence. AI can replace routine

processes.

emphasizedaccounting and tax administration tasks, but it cannot

thereplace

tasks

such

as

finding

newaccounting

accumulation of capital, the increase of the working

manipulation. Even if AI replaces routine educational

population, and the advance of technology as three

activities, AI does not seem to be able to replace thefactors to promote economic growth. In particular,

various incidents and events that suddenly occur in thetechnological progress has been the most importantclassroom. These require work that is different fromfactor in economic growth theory as a factor thatroutine work and may become more important as artificial

increases per capita production and consumption. So

intelligence becomes more widespread. These tasks thathow has the theory of economic growth dealt withare difficult to replace by artificial intelligence are rather

technological progress? The view that economic growthcomplementary tasks.

82

Chapter 5: Problems of Artificial Intelligence and Economic Growth

If work and tasks by artificial intelligence should not be

Douglas type of production function, the analysis isviewed as labor-augmenting technological progress,

limited to cases where the relationships between input

various conclusions in economic growth theory will beelements are alternative. Therefore, Aghion et al.

affected. In particular, it is expected that distributional

performed an analysis based on the CES production

relations, which have been constant under labor

function, in which the elasticity of substitution is constantaugmenting technical progress, will be greatly affected. It(4). As a result, it became possible to analyze the caseis very important to clarify this point.

where

In this article, in the next Section 2, we describe howtherelation

betweeninput

elements

iscomplementary. The function has a complicated form,

artificial intelligence models the technological progress

and is as in the following:that replaces labor. A simple economic growth model isused in Section 3 to illustrate the growth process under

𝑌 =𝐴

𝑥 𝑑𝑖

,𝜌 < 1the approach described in Section 2. Section 4 describes
the temporal development of the partition relation in the

Where the integration range [0, 1] represents the type ofgrowth process. In Section 5, we summarize and discusstask 5). The parameter ρ means the elasticity of

future issues.

substitution between input elements. When 0≤ρ <1, therelationship between tasks is alternative, and when ρ <0,

2. Machinery and labor

the relationship between tasks is complementary.

In the economic growth theory, what expresses the

Because the economic growth model in the next section

production technology is a method that uses production

examines the change in each variable with time, eachfunction. The production function expresses the technicalvariable is given a subscript t, which represents time.

relationship between the two production factors which

Automation uses the same concept as Zeira. The

produce output, capital and labor. In general, it isautomated range is [0, Bt] and the non-automated range

expressed as𝐹(𝐾, 𝐿) . K represents capital input and L

is (Bt, 1). Assuming that the total capital of the economy

represents labor input. The labor-augmenting technicalis Kt and the total labor is Lt, the capital and labor divided

progress described in the previous section is expressed

into tasks are as follows. For simplicity, we assume aas follows.

symmetrical equilibrium.
𝐹 (𝐾, 𝐴 ∙ 𝐿)𝑥 =The variable A multiplied by labor input represents
technological progress, and an increase in A plays the𝑥 =same role as an increase in labor input without an𝐾, 𝐼 ∈ [0, 𝐵),
𝐵𝐿, 𝐼 ∈ [𝐵, 1]
1−𝐵

increase in labor input L. However, it seems thatAt this time, the production function is rewritten as follows.

machines are not modeling the process of labor
substitution, intuitively.

𝐾
𝐵

𝑌 =𝐴 𝐵It was Zeira who created a model, a model of which+ (1 − 𝐵 )𝐿
1−𝐵describes that machines replace labor, and its modeling=𝐴

is as in the following. 3) Output is performed by n kinds ofwork and tasks𝑥 (I = 1,2, ⋯ , n), and when each task is𝐿,ρ < 1increase of B is the progress of automation andautomation. The formulation uses the Cobb-Douglasmechanization. So, when ρ <0 (complementary between

production function as follows.

𝑥 =+ (1 − 𝐵 )range automated by machines, it can be said that theeach task is performed by machine (capital), it is called⋯𝑥

𝐾

Since the progress of automation is the extension of theperformed by labor, it is called non-automation, and when

𝑌 = 𝐴𝑥 𝑥𝐵elements), albeit paradoxical, automation (artificial, 1, … , 𝑛

intelligence adoption) is a rise in Bt, it will be a function ofcapital-reducing

𝐿 , Non − automated tasks
𝐾 , Automated task

technical

progressandlabor-

augmenting technical progress. On the other hand, whenThus, the increase in the number of automated tasks has

0≤ρ<1 (elements are alternative), automation (adoption

madeof AI) is a function of capital-increasing technologicalitpossibletorepresent

automation

andprogress and labor-reducing technical progress. And

mechanization processes.

when looking at this aggregated production function, it

However, since the Zeira model is based on the Cobb-

83

Part 2: Social Changes Associated with the Fourth Industrial Revolution

can be said that automated tasks and non-automated

If the first term exceeds (falls below) the growth rate oftasks are alternative when 0≤ρ <1. On the other hand,

the working population, the growth rate of the capital per

when ρ <0, the automated task and the non-automatedcapita is positive (negative).

task are complementary.

How will progress be determined? It is important to

The next section describes the process of economic

analyze the behavior of R & D workers and engineers

growth based on the production function presented in thisinvolved in the practical application of automation that

section.

decide how to develop and use artificial intelligence.
However, in this paper, for simplicity, we assume that the
progress of automation (increase of Bt) is exogenous.

3. Economic growth model
In this article, we will incorporate the automation

However, the upper limit of the range of automation is Bt

mechanisms described in the previous section into the= 1. In the first analysis, automation is assumed to

Solow model, which is a of economic growth model. Let's

proceed exogenously to that limit. In the end, therefore,

begin by outlining the Solow model. For the sake of

there is little need for human labor (full automation). Next,

simplicity, transactions between the government and

we analyze where the progress stops before the upper

foreign countries are disregarded.

limit (incomplete automation). It is also assumed that
economic productivity A is sufficiently high and sA> n is

The output Yt produced in the economy is distributed
tohouseholds

accounts

asincome.

satisfied.

Households

accounts allocate income to consumption and savings at

Then, we look at the dynamics of the economy overa fixed rate. Regard s (<1) as the savings rate. Household

time. What is useful for studying this dynamic is calledsavings are used for corporate capital investment throughphase diagram. The vertical axis represents the capitalfinancial markets. The capital investment of the

per-person, k, and the plane of coordinates in which theenterprise increases the physical capital of the economy

horizontal axis represents the level of automation, B, is aand increases the output of the economy in the next

phase diagram. The phase diagram shows the movement

period and becomes a source of the economic growth.

of these variables over time using red arrows (seeOn the other hand, when the working population

Appendix 1 for details).

increases, It may contribute to an increase in total output,

First, when the relationship between elements is

but it may reduce output and consumption per worker. It

complementary (𝜌 < 0), the economic fluctuation can beis the basic equation of the next economic growth theory

expressed in the following phase diagram. Here, theto analyze the balance of the magnitude relation.

curve on the upward of ∆ 𝑘 = 0 indicates the position
where the movement of kt stops. In the region above this∆ 𝑘 = 𝑠𝑦 − 𝑛𝑘

curve, kt decreases (downward red arrow) and in the

Where the lower case letters y and k represent per-capita

region below this curve, kt increases (upward red arrow).

output Y/L and per-capita capital K/L. Also∆ 𝑘 refers to

Because automation is always exogenous, Bt is

the change in capital per person per hour. The first term

constantly increasing (red arrow to the right). In summary,on the right represents per-capita savings, which

the economy follows the U-shaped curve depicted inincreases per-capita capital. On the other hand, theFigure 2-5-1. That is, if the combination of per capita

section 2 term represents the following facts. As thecapital and automation is represented by the H point atworking population in the denominator of the per-capita

the beginning of the economy, the economy will have acapital K/L increases, the per-capita capital will decrease

decline in per capita capital at the beginning. However,accordingly. The magnitude of the first and second terms

after Point D, per-capita capital begins to increase, andmeans that the capital per capita will increase or

the growth continues forever.

decrease. The following equation is obtained by dividing

It can be seen that when the relation of between

both sides by the capital per person and changing theelements is alternative the economic fluctuations in (0 <production function of the previous section into the𝜌 < 1) are similar to those in Figure 2-5-1, although there

dynamic equation.

are some differences between them. Thus, when

𝐵
∆𝑘
𝑠𝑦
=
− 𝑛 = 𝑠𝐴𝑘𝑘𝑘

+ (1 − 𝐵 )𝑘automation proceeds to an upper limit of 1, the economy−𝑛Since∆ 𝑘 represents the change in capital per capita, theleft side represents the growth rate of capital per capita.

84

Chapter 5: Problems of Artificial Intelligence and Economic Growth

Figure 2-5-1

can continue the economicgrowth sustainably. The

economy may shrink. In other words, high productivity is

growth rate will be as below, regardless if its relationshipnecessary to prevent the economy from shrinking andis alternative or complement. As can be seen from thestagnating. On the other hand, when the relationshipfollowing equation, the growth rate is more positive thanbetween the factors is alternative, the economy can

the assumption that productivity is sufficiently high.

continue to grow sustainably as in the above-mentioned
case where the upper limit is 1 if the economy is(Growth Rate of Capital per capita)𝑔 ≡sufficiently productive. However, when the relationship∆𝑘= 𝑠𝐴 − 𝑛𝑘between the factors is alternative, the process where theeconomy shrinks will not appear even if productivity islow6).

Second, what happens to the economy if automation
doesn't progress completely and stops to some extent?

4. Distribution ratio

When 𝐵 reach the upper end 𝐵(< 1), the movement of

How will the distribution to each production factor

capital per capita is determined as follows.

change as automation progresses? The price of each
𝐵
∆𝑘
𝑠𝑦
=
− 𝑛 = 𝑠𝐴𝑘𝑘𝑘

+ (1 − 𝐵 )𝑘production factor is determined by its marginal product as
the Solow model assumes that firms act competitively,−𝑛Specifically, the wage rate is determined by the marginal
products of labor, and the interest rate, which is the price

The proof will be discussed in the Appendix, but in thisof capital, is determined by the marginal products ofcase, the process of economic growth will vary greatly

capital. In addition, all the added value of the enterprisedepending on whether the relationship between the input

is distributed to labor and capital so that the production

factors is complementary or alternative. First, economic

technology is constant return to scale. Therefore, thegrowth stops if the relationships between factors arelabor share and the capital share add up to 1.

complementary. If productivity is low enough, theLet me now explain how labor and capital shares are85

Part 2: Social Changes Associated with the Fourth Industrial Revolution

determined in the Solow model presented in the previous

5. Conclusion

section. The change in labor share depends on when theThis paper explains how to model the process ofupper limit of automation is less than 1 (incomplete

automation by artificial intelligence, and discusses what

automation) and 1 (fully automated), and whether thethe growth process based on it would be. It is shown thatthe relationship between input factors used in production,

relationship between the factors is alternative or not.

especially whether the relationship between tasks thatFirst, it can be seen that the labor share will continue

have

to fall, or at best remain at certain value, regardless of thebeen

automatedcomplementary

relationship between the factors if automation is

or

and

alternative,

that

have

is

important

not

is

when

modeling. The results showed that economic growth

incomplete

would continue in a process where automation fully

Let's look at the complete automation case. The labor

progresses. On the other hand, it shows that theshare will converge to 0 (capital share will converge to 1)

sustainable growth of the economy will stop, and in theif the relationship between automated and non-worst case, the economy will shrink if the automation is

automated tasks is alternative. In other words, all the

incomplete. Next, the paper shows that the labor share

share of output is acquired by automated machinery andwill not continue to rise in cases where automation isincomplete, but will turn out to be paradoxical results incapital. This is because the need to use labor is not socases where automation is complete and no labor ishigh and production can be carried out with capital as therequired. If the relationship between automated and non-relationship between automated machinery and labor is

automated tasks is complementary, the labor share willalternative.

eventually be 1. The reason that the share of labor isIf the relationship between automated and non-

100% even though there are few tasks that use labor is

automated tasks is complementary, the labor share may

because the work that is put into non-automated tasks isconverge to 1 (capital share may converge to 0). The

complementary, in other words essential, to the work

conditions are as follows.

(task) by the automated machine.
An important issue, not addressed in this paper, is(∗) (1 − ρ)𝑎 + 𝜌𝑔 < 0unemployment. This paper assumes that workers wholeft the work (task) replaced by the machine are

Here, a is a parameter representing the new speed of

employed by the remaining tasks. However, workers who

automation. The first term on the left-hand side ofleft work are not always immediately employed. Know-

equation represents the speed of progress of automation

how on new jobs will be needed before getting hired

and the second term represents the speed of capitalagain. Therefore, workers may become unemployment

accumulation. Each is them multiplied by a parameter

during the period they change their career. It is anindicating the degree of substitution between the factors

important task to analyze this point. Another challenge is

to take a weighted average. This condition means that theshare of labor will rather increase

to internalize the process of automation. As described inwhen 1) automation

this paper, it is workers involved in research andis progressing not very fast, 2) economic growth is high,development and engineers who develop artificial

and 3) the relationship between tasks is much more

intelligence and decide how to use it. It is also importantcomplementary, if the relationship between automatedto model their behavior by describing it. The last task isand non-automated tasks is complementary. This is

to explore the possibility of balanced growth. In this paper,

because the necessity of the production factor called

only the case where the condition (*) is not true with thelabor is also increased as automation progresses.

equal sign is analyzed. However, there may be the

Therefore, we cannot judge whether or not workers will

possibility of balanced growth when micro-foundation issuffer disadvantages only by the progress of automation

applied. These are important issues to be analyzed inusing artificial intelligence.

future.

86

Chapter 5: Problems of Artificial Intelligence and Economic Growth[Appendix 1] Phase Diagram
The following is established by the dynamic equation.
𝐵∆𝑘> 0 ⟺ 𝑠𝐴𝑘
⇔ 𝐵

+ (1 − 𝐵 )𝑘𝑘+ (1 − 𝐵 )

𝑘

>

>𝑛
𝑛
𝑘
𝑠𝐴

⇔𝐵

𝑘

+ (1 − 𝐵 )

>

𝑛
𝑠𝐴

𝑘 𝑖𝑓 𝜌 > 0⟺𝐵𝑘+ (1 − 𝐵 )

<

𝑛
𝑠𝐴

𝑘 𝑖𝑓 𝜌 < 0↔𝑘 <(1 − 𝐵 )
𝑛
−𝐵
𝑠𝐴

↔𝑘 >

𝑖𝑓 1 > 𝜌 > 0(1 − 𝐵 )𝑛−𝐵𝑠𝐴

𝑖𝑓 𝜌 < 0

The graph on the right-hand side is the upward-sloping graph in Figure 2-5-1 of the main text. Therefore, this graph forms
the boundary that determines the increase or decrease in capital per capita. The direction of the inequality sign is different
in the last relational expression when ρ is positive and negative, but the expression represents the same relation for the
positive or negative of the sign of ρ itself. That is, capital per capita decreases in the area above the graph on the right sideof the relational expression (the downward red arrow in Figure 2-5-1), and capital per capita increases in the area below
the graph (the upward red arrow in Figure 2-5-1). Thus, capital per capita represents the movement described in the text.
[Appendix 2] Growth Process when Automation is Incomplete
The increase or decrease in capital per capita is determined by the following relationship :∆𝑘≥
0 ↔ 𝑠𝐴(𝐵<𝑘+ (1 − 𝐵)

)

≥
𝑛𝑘
<

When the relationship between factors is complementary (ρ<0), the relationship can be modified as follows.
∆𝑘When (𝑠𝐴) 𝐵(𝑠𝐴) 𝐵≥0 ↔ [(𝑠𝐴) 𝐵<− 𝑛 ]𝑘+ (1 − 𝐵)≤0>> 𝑛 , the economy would continue to shrink as ∆𝑘 < 0 is always true.

On the other hand, when

< 𝑛 , ∆𝑘 = 0 is true to a certain k*. Therefore, there’s a steady state in which the growth of the capital per

capita stops. Therefore, sustained economic growth will cease. Since ρ is negative, we can see that the economy is atleast not catastrophic when its productivity is relatively high.
When the relationship between factors is alternative (0<ρ<1), the relationship can be modified as follows.
∆𝑘≥
0 ↔ [(𝑠𝐴) 𝐵<− 𝑛 ]𝑘+ (1 − 𝐵)≥0<

When (𝑠𝐴) 𝐵> 𝑛 , the economy will grow sustainably as ∆𝑘 > 0 is always true. On the other hand, when(𝑠𝐴) 𝐵

there is a steady state in which the growth of the capital per person stops, as∆𝑘 = 0 is true to a certain<𝑛k**. Therefore, sustained economic growth will cease. In summary, economies can grow sustainably when there is a highdegree of substitution between factors and economic productivity. As in the alternative case, the higher the productivity ofthe economy, the better the performance of economic growth.
[Appendix 3] Distribution Ratio
The rate of wages, or the marginal product of labor, is as follows.
𝑤 (Wage rate) = 𝐴 𝐵

𝐾+ (1 − 𝐵 )Therefore, the labor share can be calculated as follows.

87𝐿(1 − 𝐵 )𝐿Part 2: Social Changes Associated with the Fourth Industrial Revolution

Labor share =

(

=

)

(
(

=

)

×

)

(1 − 𝐵 )𝐵=𝑘+ (1 − 𝐵 )
1

𝐵
1−𝐵

𝑘

+1

When automation is incomplete, the change in the denominator is ultimately determined by the movement of capital per
capita. When automation is complete, several factors determine the change in labor share.
When the relationship between the factors is complementary (ρ<0), the labor share will be as follows. When(𝑠𝐴) 𝐵>

𝑛 , the labor share will decrease and eventually will be 0 as the economy continues to contract. On the other hand, when(𝑠𝐴) 𝐵<𝑛the labor share converges to a certain value as there is a steady state in which the growth of capital per

capita stops.
When the relationship between the elements is alternative (0<ρ<1), the labor share will be as follows. When(𝑠𝐴) 𝐵
𝑛 the labor share will decrease to 0 as the economy continues to grow. On the other hand, when(𝑠𝐴) 𝐵>< 𝑛 , the labor

share converges to a certain value as there is a steady state in which the growth of capital per capita stops.
Next, let's examine the case where the automation process is complete. First of all, it is important to note that theeconomy grows sustainably in both alternative and complementary cases. In the alternative case (0 ≤ ρ <1), thedenominator of the labor share equation rises infinitely, so that the labor share converges to 0.
Next, in the complementary case (ρ<0), the term affected by automation increases infinitely with the progress of
automation (Bt1).→ On the other hand, the term affected by capital accumulation infinitely close to 0 as the capitalincreases（kt→∞）. So, the result depends on whether the speed of automation or the speed of economic growth is faster.
Let’s consider the following automated process as a specific example.
𝐵̇ = 𝑎(1 − 𝐵 )𝐵
This formula means the following. The left-hand side represents the speed of automation. The speed is determined by two
factors. First, progress of automation is the effect of increasing the speed of automation. Bt on the right-hand side
represents that. This is the externality of the automation process. The second is the effect that the progress of automation
becomes more difficult as it progresses. The (1-Bt) on the right-hand side represents that. This differential equation can besolved, and the solution is as follows.
𝐵
𝐵
=
𝑒
1−𝐵
1−𝐵
In this equation, B0 is the initial level of automation progress. Therefore, when the following inequality(1 − ρ)𝑎 + 𝜌𝑔 < 0is true,𝑘 drops and converges to 0. Therefore, the labor share increases and converges to 1. If the inverse

inequality is true, the labor share converges to 0.
[Note]
1) The Race between Man and Machine: Implications of Technology for Growth Factor Shares, and Employment, D.
Acemoglu and P. Restrepo, AER, 2018, vol.108 (6)2) It was Mr. Hirofumi Uzawa who proved this. H. Uzawa, 1961, Neutral Inventions and the Stability of Growth
Equilibrium, Review of Economic Studies, vol. 26, no. 2, pp. 117-124.
3) J. Zeira, 1998, Workers, Machines, and Economic Growth, Quarterly Journal of Economics, vol. 113, issue 4, pp.
1091-1117.
4) P. Aghion, B. Jones, and C. Jones, 2019, Artificial Intelligence and Economic Growth, in The Economics of Artificial
Intelligence: An Agenda, A. Agrawal and A. Goldfarb, editors, NBER, Chicago UP..
5) In the following description, it is assumed that tasks exist continuously for the sake of simplification of calculation andnotation, but the same is true even if tasks exist discretely.
6) In the case of incomplete automation, contraction growth and sustainable growth occur because the Inada condition
is not satisfied in the case of CES-type production functions.

88[Part 2] Chapter 6: The Fourth Industrial Revolution
Naoki WAKAMORIix[Summary] 1)
The Fourth Industrial Revolution has created platform companies. Platform companies mediate a huge
number of transactions on a daily basis. In recent years, the attribution of personal data collected by theplatform companies and the abuse of a dominant position to their business partners have beenaproblem. If such platform companies merge with each other, would that lead to socially desirable
consequences?

What would be the policy concerns in that case? This paper also discusses how the

researchers (both theoretical and empirical industrial organization economists) who play the role ofconducting economic analysis, in-house economists, and policy makers should adapt to the 4th Industrial
Revolution in the environment where platform companies have emerged.

Notice: The English in this report was machine translated from the original Japanese before undergoing post-editing byhuman translators. In the event of any discrepancies between this translated document and the Japanese original, theJapanese original shall prevail.

ix

Assistant Professor, Graduate School of Economics, The University of Tokyo

89

Part 2: Social Changes Associated with the Fourth Industrial Revolution

1. The Fourth Industrial Revolution and the Rise ofmuch more stores than physical shopping malls, it is

Platform Companies

easier to find, browse and compare products (less search

The services provided by a group of companies called

costs) on online shopping malls as they have less

GAFA (Google, Amazon, Facebook, Apple) have deeply

physical distance or better search functions. In addition,

rooted in our lifestyles. Checking Gmail and Facebook onmatching efficiency between buyers and sellers has

your iPhone as soon as you get up, having a breakfast

improved by platform companies providing information

while watching YouTube, and checking Amazon for items

such as recommendations based on purchase history onthat were advertised in the middle...I guess you’re also

online shopping malls (matching friction reduction). In thisliving such a life2). GAFA and the tech companies thatway, the development of information technology throughhave been experiencing rapid growth in recent years

the Fourth Industrial Revolution has succeeded in(Uber, Airbnb, etc.) are characterized by the fact that theyminimizing the speed and the marginal cost ofprovide a platform for mediating transactions between

transactions to the utmost limit by enabling processing afundamentally different types of economic entities (e.g.,large amount of information and eliminating all thebuyers and sellers) online, where network externalities

intermediaries that existed between sellers and buyers,

can work better. Therefore, we call them platform

and making it easier for consumers to search for products.

companies3). For example, on Rakuten Ichiba operated

The platform is considered to exist as exactly one market.

by Rakuten,Inc. (Rakuten), a leading platform company

Even one such platform company has a large number

among Japanese companies, registered proprietors canof business partners and mediates a large number ofsell goods and services to consumers who visit thetransactions on a daily basis. In recent years, theRakuten Ichiba website. If there are many potential

attribution of personal data collected by the platform andconsumers on Rakuten Ichiba, the proprietors’ benefits of

its superiority over business partners has come to light asgetting goods and services up on Rakuten Ichiba willa problem. Under these circumstances, if such platform

increase. On the other hand, if there are many proprietors,

companies attempt to merge, would that be acceptable?

the consumers will be more attracted to Rakuten Ichiba.

Section 2 of this paper considers what is expected to

These effects are referred to as (indirect) network effects,

occur as a result of the merger of such platform

and platform companies Platform companies are thought

companies, and what are the competition policy concerns

to be increasing their value by making full use ofin that case from an economic perspective. In addition,

information technology to enhance network effects4).

Section 3 discusses how the researchers (of theory of

The concept of such a platform company was first

empirical industrial organization) who play the role ofconceived in economics in the early 2000s and was

conducting

established by a series of studies by Rochet and Tirole

economists, and policy makers will adapt to such

(2003), Caillaud and Jullien (2003), and Armstrongchanges in such environmental change.

economic

analysis,

intra-corporate(2006). Research on its properties has been advanced
rapidly since then5).

2. Adaptation of Competition Policy to the 4th

These platform companies are thought to be closely

Industrial Revolution

related to the 4th Industrial Revolution. Let's explore theirCompetition policy is the rule of competition among

relevance to the 4th Industrial Revolution by considering

companies to make the market economy work and is one

what kind of services and companies had been platformsof the policy groups that form the basis of capitalism. The

before such companies emerged. Online shopping malls

Antimonopoly Act is at the center of Japan's competition

such as Rakuten Ichiba and Amazon Marketplace, forpolicy, and the platform companies that emerged alongexample, are considered to be evolution versions ofwith the Fourth Industrial Revolution discussed in thephysical shopping malls. However, compared to physicalprevious section, are believed to be encouraging

shopping malls, there are no restrictions such as landchanges in competition policy. For example, on

restrictions. Therefore, large numbers of stores can be

December 17, 2019, the Japan Fair Trade Commission

opened there. From the perspective of consumers, they

(JFTC) revised the "Antimonopoly Act Guidelines on

can visit and enjoy various types of stores. From theAbuse of Dominant Positions in Transactions between

proprietors’ point of view, they can sell goods andDigital Platform Business Operators and Consumers

services not only to local consumers but also to more

Who Provide Personal Information" as guidelines forpeople (economies of scale and scope). While there aretransactions

90

betweenplatform

businessesandChapter 6: Competition Policy and Economic Analysis in the Fourth Industrial Revolution

consumers, and revised the “Guidelines to Application of

the online stores, and if this conduct (free shipping) is

the Antimonopoly Act Concerning Review of Business

deemed to cause undue disadvantage in light of normal

Combination” and the “Policies Concerning Procedures

business practices, it will be a breach of the Antimonopolyof Review of Business Combination.” This section

Act 9).

considers with regard to the "abuse of dominant

Such free shipping policy may be maximizing social

bargaining position" mentioned in the Antimonopoly Act

welfare (I. e., the sum of consumer surplus and profits ofand the "bargaining power" that is a concept in

the online retailers and the platform). This is because

economics and is thought to be possessed by platform

simplifying complex payment structure and free shipping

companies.

Section 2-1 and section 2-2 considers how

will reduce consumer search costs. As a result, consumer

competition policy should adapt to the 4th Industrial

surpluses of consumers who are already customers will

Revolution using Rakuten Ichiba as an example inincrease. The number of new consumers using Rakuten

section 2-1 and the merger of LINE Co., Ltd. and Z

Ichiba will also increase. Therefore, as a platform

Holdings (parent firm of Yahoo! Japan) in section 2-26).

company, Rakuten is likely to enjoy higher profits, andsocial welfare may be increasing because the increase in

2-1 Issue of Free Shipping on Rakuten Market and Abuse

consumer surplus and platform profit may exceed theof Dominant Positionburden on the online retailers. However, the burden on

On February 10, 2020, the Japan Fair Tradethe online stores is thought to be heavy especially for theCommission conducted an on-site inspection of Rakuten

online retailers who have low per-customer spending. For

office on suspicion of violating the Antimonopoly Act, insuch online shops it would be good if they can observe a

particular, "abusing a dominant position." This is because

sales increase exceeding the burden. If not, it would be

Rakuten has announced a policy of offering free shipping

said that they were given an unreasonable disadvantage(except for some regions) from March 18, 2020 onin light of normal business practices. In my opinion, thepurchases of 3,980 yen or more on Rakuten Ichiba, which

essence of this problem is considered to be priceis operated by Rakuten. The shipping fee differs

discrimination and negotiation power in economics. In

depending on the online stores. It is difficult forother words, the problem is thought to have arisen as

consumers to know the final payment price until the order

Rakuten changed the contract as if forcing the online

is confirmed. This has been causing confusion amongshops to accept uniform pricing for shipping charges that

consumers. In order to rectify this problem, the Rakuten

were previously decided at the discretion of the storesside has announced a policy to offer free shipping at theamong which there were heterogeneity in terms of

online stores’ expense on orders of 3,980 yen or more ataverage per-customer spending (that is, some online

one store. However, some Rakuten’s retailers haveretailers have high per-customer spending and someasked the Fair Trade Commission to investigate, saying

have low per-customer spending). If Rakuten Ichiba hadthat Rakuten’s forcing free shipping would violate theexpressed free shipping from the beginning and had

Antimonopoly Act.

signed a contract with online stores to cover the shipping

Abuse of a dominant position means ‘businesscost at their expense, the problem would not have got

operator in a dominant bargaining position in transactions

complicated. In that case, however, many small online

cause disadvantages to the counterparty in transactions

retailers would not have joined Rakuten. Rakuten Ichiba

unjustly in light of normal business practices.’ If Rakuten’s

may not have become an attractive platform forcase is interpreted according to the Japan Fair Tradeconsumers and might not have grown as big as it is today.

Commission'sis

In other words, it is a matter of price discrimination. At therecognized as a business operator in a dominantsame time, change in dynamic bargaining power is also

bargaining position if the following conditions are met.

a major factor (discussed again in Section 2-2).

guidelines,aplatformcompany

After many twists and turns, on March 6, 2020 March,That is, (1) stores are highly dependent on platform(2) platform companies

Rakuten withdrew the decision of free shipping due to thehave a high status in the market8), (3) stores are unlikely"impact of the new coronavirus." The issue was settled

to change their business partners, and (4) there arewhen Rakuten announced that free shipping would beconcrete facts that shows need to deal with other platform

introduced from the stores which have become possible

companies. If those conditions are met, Rakuten is

to introduce it and that Rakuten would consider

deemed to be in a dominant bargaining position towardsupporting measures in the event that sales declined due

companies fortransactions7),

91

Part 2: Social Changes Associated with the Fourth Industrial Revolution

to free shipping. However, it will be necessary in thereceive benefits in some campaign if we used thefuture to examine whether Rakuten was really in a

cashless payment system. In such a year, LINE Co., Ltd.,

dominant bargaining position in transactions (thoughwhich operates LINE Pay, a QR code-based payment

platform companies are generally considered to be in a

service, and Z Holdings, the parent company of PayPay

dominant position in business) and whether free shippingCo., Ltd., which also operates PayPay, a QR code-based

would have caused disadvantage for many online

payment service merged12). Each method of settlement isretailers. And, as this Rakuten case illustrates, a change

considered to be a platform that connects consumers as

in one contract alone can have a tremendous impact duebuyers and stores as sellers. This is because the moreto the size of platform companies. In case of a merger

consumers have those means of payment, the more

between such platform companies, the merger review isdesirable to the stores as potential customers willconsidered to be more difficult. Let's see it in the next

increase. Similarly, the more stores accept the means ofsubsection.

payment, the more incentives consumers have to havethe means of payment. What is expected to happen if

2-2

MergersandAcquisitions

betweenLINE Pay and PayPay which are such payment platforms

Platform

merge?

Companies and Bargaining Power
Mergers and acquisitions are an important factor in

Let’s consider the consumer market, which is one

changing market structure, and horizontal mergers ofaspect of the merger. Currently, there are no fees for any

relatively large firms are generally considered carefully.

of these services, and both the membership registration

This is because a merger is said to have two conflictingfee (initial cost) and the fee for settlement (charging

effects and has to be decided after assessing each effect.

according to usage) are free. In general, while usage fee

The first effect is to be able to provide goods and services

is not required of one side of the business in platform

at a lower price than before through the synergy between

business (it is likely to set a price below zero with points

companies to be merged and to be able to provide newetc.), economic agents on the opposite sides are required

goods and services through the advancement in research

to pay a price. That is known to be easy to achieve inand development. It can also be said to be the effect toterms of balance. Therefore, even if LINE Pay andimprove efficiency because the merger will increase

PayPay are merged, it is expected in economic theory

corporate profits and social welfare. Another effect is thatthat the membership registration fee, which is the initial

market power of the companies will increase as

cost, and the usage fee of the usage portion will be kept

competition is eased after the merger through a decrease

free. If they are not platform companies, the discussion

in the number of companies. This effect is called thewill be over. However, the reason why it is difficult tocompetition restriction effect, which lowers social

review the merger of platform companies is that it iswelfare10). Since such trade-offs exist in a merger, thenecessary to consider the impact not only on theCompetition Authority (the Fair Trade Commission in

consumer side but also on the merchant side that accepts

Japan)

the payment method.

usually

reviewthemergers(business

combination) and decides the pros and cons of the

Now let's consider another side of the merger, that ismerger taking into consideration the respective effects11).

how prices will be set for merchants. As of May 31, 2020,

How should this review be done in the case of mergers

according to the LINE Pay website, there are three types

between platform companies? Since it is generallyof fees that merchants pay: (1) introduction fee, (2)difficult to assess the impact after mergers between

monthly fee, and (3) settlement fee, which are 0 yen, 0

platform companies, this section summarizes andyen, and 0%, respectively. However, the proviso is added

presents the points of contention through the example ofto the settelement fee that “Until July 31, 2021. Afterretail settlement (consumer settlement method).

August 2021, it will be 2.45% [tax not included].” Similarly,

The year 2019 was the year when various cashlessaccording to the PayPay website, there are three types of

payment methods became popular, and the year was

fees that merchants pay: (1) introduction fee, (2)called the first year of cashless payment. In October 2019,

operational cost, and (3) settlement fee. It also says thatthe government initiated cashless and point refund

the introduction fee and operational cost are free, andservice started. Before and after that, various paymentthat the settlement fee is about 0 to 3.74%. However, themethod providers carried out a series of campaigns. As aproviso is added that the settlement fee varies depending

consumer, it was a very happy year as we could always

on operators, but when using PayPay, the fee is free until

92Chapter 6: Competition Policy and Economic Analysis in the Fourth Industrial Revolution

September 30, 2021.

welfare, the researchers of the empirical industrial

In the case of LINE Pay, there is already a future pricing

organization theory will need to share the problem

plan, but in the case of PayPay, it is not clearly specified

consciousness of the policy-makers and conduct(at least on the website). The author is concerned that

research in line with practical problems17).

there will be discussions similar to Rakuten's freeshipping in the future14). If LINE Pay and PayPay were

3. Adaptation of Economists, In-House Economists

merged, the number of consumers using the service

and Policymakers to the Fourth Industrial Revolution

would be greater than the total number of existing users

The preceding sections have discussed the platformof LINE Pay and PayPay, because, from the point of viewcompanies that have emerged with the Fourth Industrialof consumers, the number of places where the service is

Revolution and how competition policy will adapt as theseavailable would increase and convenience would becompanies emerge. To conclude this paper, this section

improved (and usage fees would remain at 0 and be

discusses how economists (mainly conduct an empiricalunchanged). In addition, the platform that have a larger

analysis), in-house economists (or data scientists), andcustomer base could require merchants to pay higher

policy makers should adapt to the competitive policies

usage fees than traditional usage fees. However, weand environment that change with the Fourth Industrial

must remember that a large number of merchants would

Revolution.

accept payment methods behind the fact that the platform
can get a large customer base. Not all the surplus gained

3-1 Adaptation of Economists to the Fourth Industrialfrom the growing number of consumers using the

Revolution

platform should be attributed to the platform. A

The empirical analysis methods in economics are"bargaining game" is often used in Economics as a

traditionally classified into structure estimation approach

framework to think about such distribution of surplus15).

andWhat is important in doing so is the "threat value" incurredreferred to as inductive approach)18). In general, the twoin the event of a breakdown in negotiations, which isapproaches are often sorted out by whether to determine

considered to correspond to (3) the possibility of athe fundamental parameters of the economy bychange of business partner for the merchant in theformulating and solving the optimization problem of eachguidelines for abuse of dominant bargaining position

economic agent and using the answer directly or

mentioned above16).

indirectly to make an estimation19). The field of theexperimental/inductive

approach(hereinafter

The above-referenced “Guidelines to Application of theempirical industrial organization theory, which deals with

Antimonopoly Act Concerning Review of Businesscompetition policy discussed in the previous section, has

Combination” and the “Policies Concerning Procedures

developed since the 1990s with a focus on structuralof Review of Business Combination” published by theestimation approach. Behind this was the lack ofJapan Fair Trade Commission clearly state that such a

accumulated micro data that can be analyzed in

multifaceted analysis is to be made. However, it is not yet

companies and the limited amount of computer

known how the judgment is to be made in practice. In

calculation. Even if the micro data had existed, it would

addition, abuse of the dominant bargaining position by

have been very difficult for economists (who are outsiders

platform companies has become a keyword in recent

to companies) to access in-house data20). In such ayears. Attention has been focused not only on review ofsituation, it was necessary to set relationships between

merger but also on how to manage abuse of the dominantvariables derived from economic theoretical models inbargaining position. The Fair Trade Commission’s abuse

the data generation process in order to understandof “abuse of the dominant bargaining position” maycorporate behavior using limited data (e.g., aggregateddiscourage corporate activities, so it should be carefully

data such as market share and the number of companies

managed. However, the increased market power

in a market) or to evaluate policies. For this reason, it isleveraged by the merger of platform companies also

believed that the structure estimation approach hascannot be overlooked. At present, empirical research on

spread rapidly21).

bargaining power is in progress in the industrial

However, the Fourth Industrial Revolution has createdorganization theory, and the knowledge obtained fromhigh-performance computers that can record data ofsuch research should be utilized for the recognition of aastronomical numbers and analyze terabytes of big data.

dominant bargaining position. In order to improve social

And now, many tech companies are conducting a

93Part 2: Social Changes Associated with the Fourth Industrial Revolution

cooperative research with economists, and the situationsuch circumstances, it is necessary to update the data

where only limited data can be accessed as in the past

sequentially to create a new demand prediction model. In

has been greatly improved. Today, with such a wealth ofsuch a situation, a machine learning approach would be

data, the necessity of adopting only the structurea very powerful analytical tool.

estimation approach as economic analysis lessens.

Nevertheless, the structural estimation approach andResearchers of empirical industrial organization theory

the inductive approach are important for in-housewill be required to have a good knowledge of the inductive

economists. This is because many industries are notapproach and research ability to apply it. It should bemonopolized. Similar companies develop and sell similar

noted, however, that this does not necessarily mean that

products. Even if they have a wealth of their own micro-

there is no need to study or educate structural estimation

data, it is difficult to determine their own strategies without

approaches. This is because, as discussed in thethe data of other companies. In such a situation, it isprevious section, it is expected that the development of

natural to analyze how other companies respond to one’s

the Fourth Industrial Revolution will inevitably bring about

pricing strategies using a structure estimation approach.

unknown problems. The pros and cons of regulation for

It is necessary to know well the inductive approach when

the platform companies and mergers between platform

planning and implementing A/B tests that are frequently

companies are the best examples. To approach such anused in marketing. Therefore, it is also necessary to be

unknown problem, a structure estimation approach infamiliar with other methods though the machine learningwhich one considers how economic agents change theirapproach is a bit more important.

behavior from the ground up by going back to the basic

Moreover, in response to changes in economists andeconomic theory model is often a powerful tool, rather

corporate economists’ methods, policy makers will alsothan an inductive approach in which one needs someneed to change their methods. In recent years, "Evidence

exogenous policy change. Based on the above, it will be

Based Policy Making" (EBPM for short), which means

important for economists to be familiar with both

policy-making based on evidence, has become a major

approaches in the future.

trend. When considering such evidence, it will be
important to be familiar with various methods, and also to

3-2.

Adaptationof

In-House

Economists

andhave a good understanding of the advantages andPolicymakers to the Fourth Industrial Revolution

disadvantages of each method, and to be able to interpret

What kind of skills will be required of economists / data

it appropriately. When implementing a policy, it isscientists in the companies? For them, the inductive

desirable to conduct tests such as A/B tests conducted

approach is expected to be more important than theby companies. However, unlike ordinary companies, it isstructure estimation approach, but what is moredifficult to conduct experiments. So, it is sometimes

important is the "machine learning approach" which isnecessary to use the structure estimation approach. It will

newly added as an economic analysis method in recent

also be necessary to scrutinize the micro-data andyears. For example, there is an auction (competitive

economic analyses submitted by companies in thebidding) behind the display of Internet advertisements.

aforementioned merger review and the recognition of the

The auction design and the bidding strategy for theabuse of the dominant bargaining position in corporate

advertisement of a company are supported by economictransactions. In addition, when examining digital cartels

analysis. Therefore, the underlying algorithm is notthat are not covered in this paper, policy makers may also

expected to change for a certain period of time. However,need to closely analyze the programs for pricing setting

since consumer preferences change over a relatively

that companies determine. The machine learning

short time span, tuning of parameters such as bidding

approach may also be important in that case. Therefore,

strategy and what kind of advertisement is targeted forpolicymakers need to deepen their understanding of each

what, needs to be done frequently. When an economist

method.

estimates the demand function of a commodity in writinga paper, he often does not think that the shape

As mentioned above, given the permeation of(parameter) of the demand function changes every day

economic analysis into corporate and policy makers, weor day or every week due to restrictions on data. However,

economists will be required to make changes not only incompanies that advertise on the Internet need toresearch but also in education. The theory of industrial

completely capture changes in consumer demand. Under

organization, which has been taught in universities since94

Chapter 6: Competition Policy and Economic Analysis in the Fourth Industrial Revolution

around 2000, has emphasized theoretical aspects based

making actual estimation using data) in addition to

on micro-economic theory (mainly game theory). In theconventional theoretical discussions will be increased.

future, the need to promote education that includes
empirical analysis (not only teaching methods but also
[References][1] Adachi, T. and M. J. Tremblay (2020): "Business-to-Business Bargaining in Two-Sided Markets." Available at SSRN:
https://ssrn.com/abstract=3388383[2] Adachi, T. and M. J. Tremblay (2020): "Cournot, Conduct, and Homing in Two-Sided Markets." Available at SSRN:
https://ssrn.com/abstract=3560566[3] Armstrong, M (2006): "Competition in Two-Sided Markets," The RADN Journal of Economics, 37(3), pp. 668-691.
[4] Berry, S. T. (1994): "Estimating Discrete-Choice Models of Product Differentiation," The RAND Journal of Economics,
25(2), pp. 242-262.
[5] Berry, S.T, J. Levinsohn, and A. Pakes (1995): "Automobile Prices in Market Equilibrium," Ecoometrica, 63(4), pp.
841-890.
[6] Caillaud, B and B. Jullien (2003): "Chicken & Egg: Competition among Intermediation Service Providers," The RAND
Journal of Economics, 34(2), pp. 309-328.
[7] Collard-Wexler, A., G. Gowrisanakaran, and R. Lee (2019): "Nash-in-Nash Bargaining: A Microfoundation for AppliedWork," Journal of Political Economy, 127(1), pp. 163-195.
[8] Olley, G. S. and A. Pakes (1996): "The Dynamics of Productivity in the Telecommunications Equipment Industry,"
Econometrica, 64(6), pp.1263-1297.
[9] Rochet, J.-C. and J. Tirole (2003): "Platform Competition in Two-Sided Markets," Journal of the European Economic
Association, 1(4), pp. 990-1029.
[10] Weyl, E. G. (2010): "A Price Theory of Multi-Sided Platforms," American Economic Review, 100(4), pp. 1642-1672.
[11] Ryo Nakajima (2016), "Inductive Inference v. s. Structure Inference," "Economic Seminar Extra Publication Empirical
Analysis of Evolving Economics," Nihon Hyoronsha, pp. 52-62.

[Note]
1) I received useful comments from Mr. Takanori Adachi in the preparation of this paper. I’d like to express my gratitude.
2) Even if you don't use Amazon's online shop, many Internet services have recently been provided using Amazon Web
Services (AWS), the world's largest cloud service, and we often use Amazon without realizing it.
3) It is also called platformer in Japanese. There have also been attempts to define platform companies moreaccurately, and three requirements for being a platform company are listed in Weyl (2010).
4) There is a concept of direct network effect as opposed to indirect network effect. For example, in the case of aplatform such as telephone or e-mail, the more people use it, the more convenient it is when using it. Such case iscalled a direct network effect. In the case of Rakuten Ichiba, from the online stores’ point of view, an increase in thenumber of consumers creates a positive indirect network effect due to an increase in potential customers. On theother hand, an increase in the number of competitive online retailers creates a negative direct network effect due to aloss of customers. Thus, network externalities to the same side of the platform are called direct network effects, andnetwork externalities to different sides are called indirect network effects.
5) Chapter 7 of Part II of this report is also an example. For a more detailed theoretical discussion, including thedefinition of platforms, see Chapter 7 of Part II.
6) In addition to these problems, there are other problems such as the emergence of digital cartels and the handling of
personal information. However, due to the lack of space in the paper, these problems will be omitted.
7) The transaction dependency in this case is calculated by dividing the sales of an online store on Rakuten Ichiba by
the total sales of the store.
8) In this case, market share of Rakuten Ichiba and ranking in the market are considered.
9) More precisely, the following are prohibited : (a) causing the counterparty in regular transactions to purchase goods
or services other than the goods or services pertaining to said transactions; (b) causing the counterparty in regulartransactions to provide for oneself money, services, or other economic benefits; (c) refusing to receive goods
pertaining to transactions from the counterparty to the transactions, causing the counterparty to the transactions totake back the goods pertaining to the transactions after receiving the said goods from the said party, delaying thepayment of the transactions to the counterparty, or reducing the amount of the said payment, or otherwise
establishing or changing trade terms or executing transactions in a way disadvantageous to the counterparty.
10) The competition restriction effect is classified into the unilateral effect which the merged enterprise carries out alone,
and the coordinated effect by the merged enterprise and the enterprise which was not merger party but existed in thesame market.
11) More specifically, the commission makes a decision as to whether or not they will be the subject for the review ofbusiness combination. If so, the commission will confirm certain fields of trade, and examine comprehensively
whether or not to substantially restrict competition in each field of trade from unilateral and coordinated effects.
12) This paper focuses on the aspect of retail settlement. The difficulty of this merger review is that while Z Holdings Inc.
provides Yahoo! JAPAN’s search engine and other services, LINE Co., Ltd. mainly provides LINE, a type of SNS
service. They will share personal information collected by each service, thereby increasing its market dominance in95Part 2: Social Changes Associated with the Fourth Industrial Revolution

the advertising market.
13) For example, Armstrong (2006), a paper that is also the cornerstone of platform research, shows that the side whichenjoys more indirect network effect pays more to the platform to achieve a balance. Subsequent studies show thatthe price of one side may be zero.
14) There is a possibility that the future price is just not specified on the website and is written in the contract with eachstore.
15) Since PayPay's future rates are variable, PayPay could discuss usage fee on a case-by-case basis (or depending on
company size and industry) rather than setting a single price.
16) With this in mind, Adachi and Tremblay (2020a, 2020b) made a good model. his paper They succeeded inconstructing a theoretical model and drawing policy implications.
17) Considering a one to-one bargaining game between individual stores and platform firms, it is likely that the newly
generated surplus will be returned to the platform firms. It may be necessary to consider a model in which multiple
economic entities are negotiating in parallel (see, for example, Collard-Wexler, Gowrisankaran, and Lee (2019)).
18) The latter is often separately defined as "experimental approach" and "inductive system approach". They are often
defined separately. We may now add a "machine learning approach" to these categories of analytical methods, which
are discussed in Section 3-2.
19) See Nakajima (2016) for examples of more precise classification and analysis, and for a discussion on the two
approaches that occurred around 2010.
20) In labor economics and other fields, panel data that tracks individuals and households over a long period of time havebeen developed and accumulated, and inductive approaches that have a high affinity with such rich micro data (interms of information quantity) have often been adopted. Therefore, it is thought that econometric techniques
belonging to the inductive approach have been developed.
21) For example, Berry (1994) and Berry, Levisohn, and Pakes (1995), which are often used in estimating demand
functions, make an estimate so that the expected market share, which is the sum of the probability of choice obtained
from discrete-choice models, matches the actual market share, assuming that individuals choose their options tomaximize utility. The Olley and Pakes (1996) method, which is often used to estimate a production function,
theoretically shows that companies that invest more this term receive a shock of better productivity (which is notobserved in the data) compared with companies that invest less. The method makes it possible to estimate a function
by using the relationship well.

96

[Part 2] Chapter 7: How Platforms, the Sharing Economy, and P2P Trading
Change the Market Economy?
Tetsuya SHINKAIx[Summary]
This article outlines the changes in the Japanese economy and society from the period of Japan’s high economic
growth in the middle of Showa and the period of product differentiation and increase in variety to the period of
economic globalization after the collapse of the bubble economy in the early Heisei period and more than 20 yearsof stagnation of the Japanese economy, and from the late Heisei period to the period of Reiwa in which the trade by
the platform sharing economy develops. In addition, this paper outlines the changes brought by these changes,
which have taken place in the Japanese economy and society, in the distribution structure and market transactions
from the production of goods and services to the delivery to consumers. Based on that, the paper explains howchanges in the method of transmitting information by advertising from producers of goods and services to
consumers and changes in the composition of marginal costs have effect on distribution structure of market
transaction value obtained by companies, consumers, etc. at each stage to each transaction participant. Graphics
are used in the paper so that the explanation is intuitively understood.

Notice: The English in this report was machine translated from the original Japanese before undergoing post-editing byhuman translators. In the event of any discrepancies between this translated document and the Japanese original, theJapanese original shall prevail.
x

Professor, Graduate School of Economics, Kwansei Gakuin University

97

Part 2: Social Changes Associated with the Fourth Industrial Revolution

1. Introduction - What is a platform company? ~In recent years, Google, Apple, Facebook, Amazon.
com, Netflix, Microsoft, and many other large companies,
also known as Big Tech and GAFA, have made enormous
profits in the business world, and their actions havedrawn attention from companies in other industries,
consumers, governments around the world, andcompetition authorities. Many of those giant companies
are called platform companies.

capitalist countries that achieved economic growth after
the second World War, the Japanese economy, from thechaotic period after the defeat in the war, saw an increasein exports of industrial products due to special demands
from the Korean War. That led to an increase in demandfor industrial and manufacturing products, and thesecond industry that produced and supplied theseproducts developed. As a result, labor demand in the
manufacturing industry increased. Taking this opportunity,
there has been a population migration from the rural
areas where people are mostly engaged in the firstindustries, such as agriculture, forestry and fisheries, tonear-by cities where these goods are consumed, since
the middle of the 1950s, when I was born in this world.
Many workers get jobs and settle in cities, and theirincomes rise. Demand for goods and services as well as
demand for the service industry, which is the third sector,
also rises. The increase in income from life without goods
after the second World War gave people the opportunity
to consume goods and services to satisfy their strong
desire. Large domestic markets for goods and services
were created in cities and their surrounding areas, andJapanese companies mass-produced a wide variety ofgoods and services and supplied them to the market.
That generated the mass consumption society.

Even in Japan, there are many such platform
companies around us. Those include BizReach, a careerchange support service provider that connects those whowant to change jobs with companies that are looking forexcellent human resources who can be immediately
assets, and SHIRU CAFEs that are located near famous
universities and connect students with companies thatwant to hire excellent human resources from the students.
Mercari is also a platform company that connects people
who want to sell their unwanted goods and handmade
goods with people who want to buy used goods andhandmade goods at low prices.
Platform companies have three characteristics: 1) they
provide different goods (products) and services to two or
more different user groups; 2) they can determine theprice of goods and services to be provided to all groupusers; and 3) the utility (benefit) of a user belonging to
one user group depends on the number of users
belonging to the other user group (network externality).

People always lived in some areas in cities and knew
who each other was from where. Then people from many
regions moved in and did not know who each other wasfrom where. Local societies where they had face-to-facerelation were transformed into urban societies where they
don’t have that relation. During the period of higheconomic growth, the population concentrated in the city.
The number of small-scale manufacturers of goods, retailstores selling those goods to consumers, and the service
industry of the food services of individual sales also
increased, as entry into the market is easy if the market
size of many kinds of goods and services continues togrow.

In fact, the prototype of the platform company withthese characteristics appeared in the Japanese businessworld from the middle of the Showa period.
In this article, I would like to avoid the explanation by
the theoretical economics model, which is my main
business, and consider a platform company by paying
attention to the big flow of economic change in each eraof Showa, Heisei, and Reiwa that I have experienced asconsumers. In particular, the Fourth Industrial Revolution,
which is the theme of this study group, has caused
innovative changes in the economic system. By focusing
on structural changes in distribution systems andchanges in marketing systems that capture consumers'
preferences and likings for goods and services, this paper
tries to explain how the innovative changes had impact
on the distribution of wealth from the perspective of
marginal cost. By doing so, this paper considers how
platforms, the sharing economy, and P2P trading, whichcharacterize the modern economy, can change market
trading and affect businesses, consumers, and society.

In addition, the progress of motorization through road
improvement and the construction of national
expressway networks, and the increase in the movementof people through the improvement of Shinkansen bullet
trains, airports, and air routes, brought about further
development of the market.
The increase in transactions with people without
having the face-to-face relation has called for consumer
credit and cashless settlement efficiency to support safe
transactions. The development of information networks
through the development of computer technology anddata communication technology has created platform
companies called credit card companies. The companies
mediate transactions between consumers andbusinessmen who want to purchase goods and services

2. High Economic Growth, Formation andDevelopment of Mass Consumption Society, andPlatform Enterprise as Consumer Credit
As was the case with the economies of Western

98Chapter 7: How Platforms, Sharing Economies, and P2P Trading Change the Market Economy?

cashless, and companies and retailers that sell andsupply them through a consumer credit system.

high prices of goods and services, and the consumer
surplus was small. On the other hand, due to the higheconomic growth and expansion of domestic demand by
population, jobs and income were guaranteed to thepeople working for these middlemen. In such a verticallylong distribution system, if the manufacturers are thefurthermost upstream, each intermediary manages theinventory of goods purchased at the purchase price fromthe upstream company, and sells them to downstream
wholesalers and retailers by setting their own wholesale
prices, taking into account inventory management costs,
adjustment costs to place and receive orders, cost fortransportation of products, manpower costs, and others.
Some people including Isao Nakauchi of Daiei Inc., tried
to shorten the chain of distribution aiming at eliminating
the multiple limitations in order to sell goods at low prices
to consumers at supermarkets by eliminating middlemen.
However, goods and services that companies aimed atselling at high prices through quality improvement anddifferentiation were not sold in supermarkets, and theconventional multi-stage distribution system as shown in
Figure 2-7-1 was maintained and functioning.

Over the past 20 years, when Japan's economy was
relatively stable thanks to employment security throughhigh economic growth, the middle-class income bracket
of a large number of workers was brought to Japan'ssociety and economy. An active demand from the middle
class has led to the creation of credit-card companies,
which offer installment sales of high-priced consumer
durables and automobile loans. It is believed that these
credit-card companies have also functioned as platform
companies.
From the 1970s to the first half of the 1980s, theJapanese economy experienced a recession due to thebusiness cycle, but in the medium run, high economic
growth continued. At that time, the population was
growing and the society was not aging. So domestic
demand grew steadily. For this reason, if people joined acompany immediately after graduating from high schoolor university, they would often work for the same
company until they retire. If they worked hard, they would
be able to buy a house. Such seniority-based pay scaleand lifetime employment system were believed. In
addition, it was believed that professional craftsmen otherthan salaried workers would be able to become
independent with their own shops and factories if theyjoined a long-established store after graduating fromschool, polished their skills, and practiced for a long time.
That was actually possible at that time.

In particular, the baby boomers who were born in the
period known as first baby boom after World War II, grewup affluently on the wave of high growth, and reachedtheir youth and adolescence around this time,created a huge market. In order to generate new or
replacement demand in these young people’s
markets, companies had to find out what kind of
products and services they wanted by dividing
consumers' markets according to their tastes anddifferentiating them. In fact, as the baby boomers
age, advertising agencies such as Dentsu Inc. andHakuhodo Inc. attempt to differentiate theirproducts from other goods and services that thebaby boomers may want depending on the age and3. Increase in variety through differentiation of
products and services and platform companies
From the latter half of the 1980s to the Bubble Era, inthe economies of each country that achieved higheconomic growth, the consumers of the middle class(middle-income bracket and above) with a strong
consumption appetite had obtained almost all thenecessary goods (products) and services. They began toattach importance to the taste and quality of goods andservices However, although the information network ofbanks using large-scale computers was developed,
consumers did not have smartphones, tablet terminals,
PCs, etc. at that time as they do today. The Internet
communication technology connecting this informationon consumers' tastes with marketing companies was notdeveloped. However, the capitalist society needed tocreate new consumption in order to seek further
additional value and growth. In addition, as shown in
Figure 2-7-1, the distribution system from producers ofgoods and services to consumers was mediated by many
wholesalers. Goods and services were sold toconsumers through retailers, resulting in the inefficiencyof multiple limits. It is believed that consumers purchased

Platform companies that have contributed to this are
fashion magazines for clothing and specialty magazines
for goods. (For example, fashion magazines include
MENS CLUB, anan, Nonno, etc.) Other non-fashion
magazines include POPEYE, Olive, and HotDog Press)
These magazines cover a wide range of goods andservices, including fashion brand products, restaurants,
and accessories, which are differentiated by lifestyle andtaste for the baby boomer generation who purchase them,and provide information on these goods and services,and earn advertising revenue from companies. The
publishers and advertising agencies that publish thesemagazines are platform companies that sell separate
services to the two-sided market, which have markets forboth businesses and consumers in differentiated andsegmented markets.

99Part 2: Social Changes Associated with the Fourth Industrial Revolution

Multi-stage distribution structure of goods and services / Create multiple limitations
Figure 2-7-1 Traditional Distribution System Structure of Goods and Services and Multiple Limitations

to make advertisements and create fashion.

addition to the multiple limitations imposed by firms thatstand between the sale and distribution of goods fromproducers to consumers, the multiple limitations imposedby information and systems that enable producers to
identify and differentiate consumer preferences have lifted
prices of goods and services. However, it is thought thatthese factors have also contributed to the growth of thenational economy as a whole by serving as a source ofprofits for the firms involved and income for the people
working there (Figure 2-7-2).

However, in order for the production and supply companiesof goods and services to differentiate their products andservices according to consumer preferences and tosegment their markets, the first step was for thesecompanies to order advertising plans to advertising
agencies. Through the agencies many industries, including
platform companies such as specialized magazine
publishers, television commercials, television stations,newspaper companies, photographs, models, graphic
designers, art directors, printing companies, Tohan which
is a company in the distribution of publications, bookstores,
and retailers that actually sell apparel and accessories,
were involved and connected to consumers. Therefore, ahuge advertising cost was required. In general, the profits
of these media companies, publishers, and advertising
agencies, and the salaries of their employees were higher
than those of manufacturers. Companies producing goods
and services required high marginal costs, including thosemarketing costs. Consumers had to buy expensive goods
and services, and a significant portion of the price of goods
and services could be the sales of advertising agencies
and many industries involved in segmentation, as well asfrom the incomes of the people who worked there. In

In the field of theoretical economics, progress has also
been made on the basis of the development of information
economics and game theory. In the field of
microeconomics, new industrial organization theory has
been developed. In the field of business, strategy
management has been developed. In the field ofmacroeconomics, the research on endogenous economic
growth theory has also been developed. The theory saysthat an increase in the variety of products increases theutility of consumers, and an increase in the demand for
new and differentiated products and services give profits tocompanies and leads to economic growth.
In addition, the stabilization of employment and theincrease in income of the baby boomers due to high100

Chapter 7: How Platforms, Sharing Economies, and P2P Trading Change the Market Economy?

economic growth contributed not only to the increase ingoods and services but also to the increase in domestic

demand for owner-occupied housing rather than forrental housing.

Figure 2-7-2 Product Differentiation, Multi-Commodity Producers, Mass Media and Advertising Agencies,
and Multiple Marketing Limitations

There are real estate developers and real estate

Real estate and stock prices soared, and domestic

agents who want to sell newly built apartments anddemand peaked. As a result, young people and the baby

houses built for sale, as well as the Recruit Group, whichboomers continued to consume goods and services

plays a role in linking individual lenders of buildings,

vigorously on the basis of this "commitment to

The Japanese economy entered a bubble period.

goods" and differentiation strategy until the end of the
1980s.

101

Part 2: Social Changes Associated with the Fourth Industrial Revolution

Figure 2-7-3 Late Showa Era: Platform Business Concept in the early Heisei period

4. The bursting of the bubble economy and the lossof the Japanese economy for the past 20 years, anda sluggish domestic demand
Since the collapse of the bubble economy in early 1990,
the growth of domestic demand has slowed, making it
difficult for Japanese companies, which had been
supported by strong domestic demand, to hire newgraduates as regular employees until their retirement.
Therefore, the companies have increased the number of
non-regular and temporary employees from temporary
staffing companies to make labor costs variable and cut
expenses. The number of those employees can be
adjusted according to the production and supply volume.
Social insurance for regular employees or reserve fundfor retirement allowance, which will be fixed costs, are notrequired for those employees. As a result, the purchasing
power of Japan's middle class has declined, and thedomestic market, in which Japanese companies mainly
provided goods and services, has shrunk significantly
compared to the bubble period.

with a high appetite for spending were different fromconsumers in Japan’s market which was mature anddifferentiated by taste and quality and they wanted lowpriced products with basic functions rather than ones withhigh quality, new functions, and beautiful designs.
Japanese companies brought high-priced products withhigh quality, beautiful design, and multiple functions into
market. As a result, they have lost out in price competition
against manufacturers in South Korea, Taiwan and othercountries and lost the market share.

Many of Japan's leading manufacturing companies(manufacturers) of automobiles, home appliances, andother products tried to find a way to make up for the
decline in sales due to the contraction of domestic
demand by exporting products to China and ASEAN
countries, where growth continues, and to North America,
where economic expansion continues.

After this trend continued for more than 10 years, many
young workers became non-regular employees. The
number of people who get married decreased due touncertainty over their life in the future. Society faced later
marriage and dwindling birthrate. The structure of the
productive workforce in the company also changed,
resulting in acceleration of demographic aging. Societychanged from the 100 million, all middle-class society tosociety where the gap between the rich and the poor iscreated. The income of the young is particularly low, andIn order to compete in overseas markets and to reduce
production and transportation costs, Japanesecompanies began to directly invest overseas andproduce locally. In Japan, the hollowing out of industries,
mainly in manufacturing industries, and the reduction in
employment by reducing the number of new graduates
hired, as well as restructuring early retirement of older
employees under the seniority-based wage system (inparticular, the reduction of regular workers with highwages, including those for fixed costs) advanced.

Demand for automobiles and home appliances inemerging countries, especially China at the time, wasstrong. However, in these growing markets, consumers

102Chapter 7: How Platforms, Sharing Economies, and P2P Trading Change the Market Economy?

the elderly have money saved up thanks to the higheconomic growth. The elderly consumes less comparedto the time when they were working as their income isless due to retirement and they are concerned about theirhealth in the future. This resulted in a decline in demandfor high-priced products and services in the market before
the bubble economy. In addition, most of the industrial
products are imported at low prices from China and otheremerging countries. The demand for low-priced products
such as the one sold at 100 Yen Shops (including Daiso,etc.) has increased in Japan where incomes havebecome low. As described in the previous section in
Figure 2-7-2, the business model of the differentiation of
products involving multiple limitations that costadvertising spending, has disappeared as consumers'
demand for high-priced products was replaced bydemand for low-priced products. The business model
was created by many Japanese goods and services
industries in the 1990s. In addition, the increase in thenumber of low-cost imported industrial products fromoverseas accelerated the elimination of the middleman in
the multi-stage distribution system of goods and services
involving multiple limitations as shown in Figure 2-7-1.
That distribution system remained until the 1990s.

was in a deflationary trend, and prices and the income
level of workers continued to fall.
At the same time, the price of goods imported fromabroad has fallen due to economic growth andindustrialization in the core nations. As a result, even if
the price paid by consumers for goods and services fell
due to the loss of margins that the middlemen in each
distribution stage in the past system had made intransactions, the companies producing and supplying
goods and services could barely survive by lowering
marginal costs by procuring goods and services that had
been produced in Japan from abroad or by shifting
production bases overseas through direct investment.
In recent years, thanks to the spread of the Internet andsmartphones to men and women of all ages, online
businesses such as games, online shopping, e-books,
video and music distribution, various introduction andreservation sites, sharing economy (for example, ridesharing), and advertisement have been expanding, andthey have been taking a large share in the industrial
structure.
6. How Has the Growth of the Internet and Mobile
Devices Changed the Distribution System and theDistribution of Transaction Value?
How did these new changes in economic transactions
affect the distribution system for goods and services? The
business model of Amazon.com is a good example of thischange. Originally started as a business using theInternet for book sales and distribution systems, Amazon
is now developing a big business around the world that
handles everything from consumers’ Internet orders for avariety of goods to collection of payments, inventory
adjustment, and delivery.

5. Development of Internet and communication
systemtechnology,
development of
onlinetransaction using mobile information
Since the middle of the Heisei era, as the Internet andcommunication technologies have advanced. Whenmobile communication devices such as mobile phones
and smartphones became popular, many of thetransactions of goods and services have been replacedby transactions through the Internet instead of face-toface transactions between customers and physical stores.
In particular, bookstores were severely affected. In thepast, there were small bookstores in our neighborhoodand large bookstores in urban areas. However, whenpurchase and delivery services of books through theInternet such as Amazon.com became available, thesebookstores could no longer carry on the business solely
by selling books and they could not survive without selling
goods other than books, such as stationery, rental videos,rental music CDs, game software, etc. As Amazon. com
and Rakuten expand their sales of goods and services
other than books through the Internet, many department
stores (Sogo) and supermarkets (Daiei) in Japan wentbankrupt. Sears Holdings Inc. in the United States, which
was established in the late nineteenth century, went outof business in October 2018. As shown in Figure 2-7-1,
the collapse of the traditional distribution system andstructural changes in the distribution system areprogressing. During this period, the Japanese economy

Amazon offers two types of services: FAB service forlarge customers (selling 50 items or more each month)and service for small customers (selling up to 49 items
each month). The service fee for the FBA (Fulfillment By
Amazon) service for major customers consists of a fixedmonthly fee of 4,900 yen and two-part fees that are
inventory storage fees and fulfillment fees. The inventory
storage fees are a fee charged for the storage service forthe time period from posting one’s products on the
Amazon.com site, sending them the warehouse anddistribution center called Amazon Fulfillment Center toselling them on the site. The fee is classified by the size
and weight of the products and charged for the specificstorage days (the number of days products are stored
until they are sold and shipped). The fulfillment Fee ischarged for packing and shipping of the products andcustomer service based on pay-as-you-go system. A
Fulfillment fee is charged for the packing and shipping of
the products and customer service is based on a pay-as-

103

Part 2: Social Changes Associated with the Fourth Industrial Revolution

you-go system.
(cited from Fulfillment by Amazon(FBA) - Price Plan - Amazon.co.jp). Also, if a product of aseller under the FBA system is sold on the Amazon site,
and if a consumer, who is a purchaser, is an Amazon
Prime member (annual membership fee 4900 yen), the"Amazon Prime Eligible Item" is displayed on the site.
The item will be shipped to the purchaser and basicallyarrive next day (one-day delivery). The delivery fee is free.

difference between the actual shipping fee and the fee
Amazon determines as costs. In the case of sellers who
sell fewer than 49 items per month, as in the case ofmajor sellers and companies using FBA system, Amazon
receives all the money paid by consumers on the Amazon
site. The amount after deducting the basic fee of 100 yen
per piece and the referral fee will be paid to the accountof sellers.

On the other hand, about the items of sellers who do
not use FBA system regardless of whether large or small,even if the price of the items is low, the shipping charge
to be paid by the buyer is determined according to thecategory of the items. Therefore, the seller has to decide
the selling price considering the difference between the
shipping charge and the actual shipping cost (mostly
higher than the shipping charge specified by Amazon).
Consumers also have to decide which items to buy fromwhich company by comparing the prices of the items andthe shipping fees specified by Amazon.

The emergence of Amazon as a platform company
created retail arbitrage (a kind of arbitrage trading inwhich people make profits by buying at low prices andreselling at high prices) which is a second job forindividuals. Individuals who were not in the distribution
system shown in Figure 2-7-1, could newly enter the
trading market. It is still fresh in our mind that such
arbitrage transactions were frequently carried out on
Internet sites for masks and alcohol disinfectants, which
are currently in short supply due to the novel coronavirus.
In addition to Amazon, regarding other services suchas Airbnb, hotels, babysitters, various cleaning services,
new economic transactions have been created by theplatform companies through the Internet. The distribution
system of goods and services are also undergoing
structural changes. (See Figure 2-7-4)

Due to this inconvenience, most buyers who are
Amazon Prime members buy Amazon Prime Eligible
Items which will arrive next day for free shipping. (I am amember of Amazon Prime because I often buy foreign
and Japanese books due to my job.) The buyer(consumer) pays the price to Amazon with a credit card,
etc., and the delivery is also done by Amazon. So, there
is no risks associated with relying on the transaction,such as that the items didn’t arrive even though thepayment was made. About the performance and usability
written on the site for the purchased product, etc. can beevaluated by the purchaser. The purchaser can freely
post the information on evaluation system and thecustomer review. Therefore, if the seller lists inferior
products, the purchaser, who is a site user, avoids thepurchase of the products listed by the seller. So, there isno bait advertising in the system. Amazon puts together
purchase amount collected from customers every month,deducts the FBA fee, and then pay to sellers andbusinesses. It is well known in the field of industrialorganization theory and economics that the two-part fee
system is a type 2 price discrimination scheme in which
the average price per unit becomes lower as the sales
volume increases.

The traditional vertical distribution system (left side of
Figure 2-7-4) remains, but its gaining seems to have
gradually declined. As shown in the right side of Figure 27-4, Amazon and other platform companies are involvedin transactions that go beyond the vertical structure.
Through their platform sites, they carry out advertising,sales, inventory management and delivery services, andcollection of sales, which have been done individually bymiddlemen in each stage. Platform companies such as
Amazon have set these service charges, and through a
price discrimination strategy based on a two-part fee
system, many of the transaction value seems to be
reduced by the marginal cost of the platform company
and its profits are increased. Trading opportunities andprofits are also distributed to sole proprietors who makea profit through arbitrage or prosumers. Those were notin the traditional distribution systems. Consumers who
become Amazon Prime members seem to be able to buy
products at prices generally lower than the retail prices inthe traditional distribution systems.

On the other hand, there is no fixed monthly fee of
4,900 yen for sellers who sell fewer than 49 items permonth. The shipping fee specified by Amazon, and theselling fee (the basic fee of 100 yen for each item) andthe referral fee depending on the category of the items(8% to 15% of the product price (product price + shippingfee)) are charged by Amazon. Even for sellers who sell
fewer than 49 items per month, the shipping fee paid by
the buyer is determined by Amazon. So, the sellers needto determine a selling price on the site by estimating the

7. How Have Platform Businesses such as Google
Changed the Product Differentiation, Advertising,and Marketing Strategies of Companies?
As shown in Figure 2-7-2, in order to differentiate
consumers based on their preferences and to segment
the market and discriminate on price, companies had to
pay high advertising fees to extract information about
consumers' preferences and likings. Companies spent a

104

Chapter 7: How Platforms, Sharing Economies, and P2P Trading Change the Market Economy?

Figure 2-7-4 New Distribution System Changed by Platform Providers such as Amazon

lot of money on advertising expenditures to develop new
products through market research by advertising
agencies, advertising on television, newspapers, andother mass media, and sending product information to
consumers through magazines tailored to consumer
tastes and lifestyles, and monitoring responses (such as
taking data on magazine subscriptions and sales of items
put in magazines). As shown in Figure 2-7-2, the costrequired for such marketing supported the employment ofmany people involved, such as mass media, advertising
agencies, magazine publishers, photographers, andstylists. A large proportion of the transaction value as aresult of selling high-priced products was distributed as
sales in these marketing industries.

platform. Consumers search for their tastes and hobbies.

However, the development of the Internet, online

opportunity is AdWords. The system is that from Google,

network

communication

technology,

andFor service providers, the action will be useful information
on a question, “Which website did the user of this devicebrowse in his/her search?" In other words, the service
provider can obtain information on consumer preferences
and personal information of the user of the terminal from
his/her advertisement browsing data and purchasehistory. As a result, the service provider can deliver more
finely segmented advertisements tailored to the needs ofconsumers, and can conduct efficient marketing.
Google, which is a platformer with the dominantcommunications network called the Internet, has twomeans to make a profit. The first revenue-generation

mobilethe service provider buys keywords that would be morecommunication information technology, and the spread oflikely to lead consumers to click the service provider’spersonal computers to consumers, the spread ofname. Another is ”Ad sense" advertising. The system ofsmartphones, and the development of search engines

this advertisement is that a company that is an advertiser

such as Google have reduced information search costs.

purchases a keyword and pays Google an advertising fee

Consumers have been able to access the informationof 30 yen per click. The company can include links to thewhich could not be obtained without reading a magazine

related website of the company in the space of “ads by

and spending time and money searching for things,

Google” on YouTubers’ or bloggers’ sites that are relevant

places, and things that they were actually interested into the key word. When a consumer who visits the

only by searching for using a PC, smartphone or tablet

YouTube or the blog websites clicks on such included

computer. Platform companies such as Google play alinks and sees the advertisement of the company on therole in linking consumers' search behavior and service

company’s product page, the company will pay Google

providers' advertising activities through SNS on thesome money per click. When that consumer purchases

105Part 2: Social Changes Associated with the Fourth Industrial Revolution

Figure 2-7-5 Corporate Differentiation and Marketing Structure Following the Spread of the Internet
and Mobile Devices
the product, Google will pay a portion of the revenue toarticles on YouTube and the Internet rather thanthe video and blog operators. Google makes money fromnewspapers, magazines and TV. That is, the changes inthe difference between advertising revenue from its

product

sponsors and sales fees paid to its prosumers. (Seepractices of enterprises due to the spread of the Internet

Figure 2-7-5)

and the emergence of platformers have clearly resolved

differentiation,

advertising,andmarketing

Unlike the conventional product differentiation strategy

the inefficiency of multiple limitations as seen in Figure 2-of advertising agencies, mass media, and magazines

7-2. It seems that platform companies such as Google

shown in Figure 2-7-2, consumers directly click on

and prosumers, who supply content to YouTube and Web

advertisements from lifestyle blogs and video sites theysites, have received a significant share of the transaction

are interested in. It is much cheaper than investigating

value of advertising as a result.

therelationshipbetweenTV

ratings/newspaper

subscriptions and purchases of one’s own products.

8. Conclusion

Therefore, it is possible not only to directly grasp

In this paper, the impact by the development of theadvertisements and purchase histories in quantitative

Internet and mobile communications are examined not byterms, but also to obtain detailed information ontheory but by experience in the changes of the Japanesecustomers, such as asset information, by linking witheconomy in the past a few decades and a simple diagram,

electronic money, credit card information, etc. Google canfocusing on the changes in the structure of the productprovide these services to consumers, prosumers anddifferentiation and advertising and marketing activity

businesses at ridiculously low marginal costs. Therefore,systems of enterprises caused by the distribution

companies’ expenses of advertising in the mass media,

systems of goods and services production and supply

magazines, and newspapers, which had profits from aenterprises as well as the appearance of platformlarge amount of trading value as shown in the old Figurecompanies. Cost structure will change with changes in

2-7-2, has decreased. As a result, advertising revenue ofthe process in which goods and services supplied by

TV stations, newspapers, and magazines has decreased.

companies are supplied to consumers. I tried to explain

Companies’ advertising costs in their marginal costs ofin an easy-to-understand way how the distribution of

their products are likely to decrease significantly. In terms

value to which traders in economic transactions hasof information acquisition, it seems that more and morechanged through such changes.

consumers are enjoying content through videos and106

Chapter 7: How Platforms, Sharing Economies, and P2P Trading Change the Market Economy?

[References]
Einav, L., C. Farronato, and J. Levin (2015), "Peer-to-Peer Markets," National Bureau of Economic Research Working Paper 21496.
http://nber.org/papers/w21496 (accessed 2018.5.10)
Benjaafar, S., G.Kong, X. Li and C. Courcoubeitis(2018), "Peer-toPeer Product Sharing: Implication for Ownership, Usage, and Social
Welfare in the Sharing Economy," Management Science, ISSN 1526-5501(online), http://pubsonline.informs-org/journal/mnsc/
Armstrong, M. (2006). Competition in two-sided markets, The Rand Journal of Economics, 37(3), 668-691.
Choi, J. P. and Y. Zennyo (2019). Platform market competition with endogenous side decisions, Journal of Economics and Management
Strategy, 28(1), 73-88.
Jiang, B. and L. Tian (2018). Collaborative consumption: Strategic and Economic Implications of product sharing, Management
Science, 54(3), 1171-1188.
Rochet, J., and Tirole, J. (2003). Platform competition in two-sided markets, Journal of the European Economic Association, 1(4), 9901029.
Weil, E. (2010). A price theory of multi-sided platforms. American Economic Review, 100(4), 1642-1672.
Tetsuya Shinkai (2018), "How does the platform business change the market? - P2P Trading, PF Business and Market Economy
Analysis -, International Institute for Advanced Studies, "Adaptation to the Fourth Industrial Revolution - Reorganization ofSocioeconomic System -" Report
The Fourth Work Shop in FY 2018, October 26, 2018
Tetsuya Shinkai (2019), "Causes of Apple's Poor Business Performance : The Agony of High-Spec Pursuing Manufacturer," International
Institute for Advanced Studies, "Adaptation to the Fourth Industrial Revolution - Reorganization of the Socioeconomic System", Report
The ninth Workshop on "Adaptation to the Fourth Industrial Revolution" May 24, 2019
Tetsuya Shinkai (2020), "How does the platform business change the market? - P2P Trading, PF Business and Market Economy
Analysis -, International Institute for Advanced Studies, "Adaptation to the Fourth Industrial Revolution - Reorganization ofSocioeconomic System -" Report
The 15th Workshop on "Adaptation to the Fourth Industrial Revolution" February 14, 2020
Masayuki Shiba Yama (2008), Google Economics, Forest Publishing Co.,Ltd.
Zennyo, Y. (2019). Lecture on Platform Competition and its Applications, September 28, 2019 Study Group on Industrial Organization
and Competition Policy @ Nagoya University, slide(Referencing Websites)
Amazon shipping fee for sellers selling fewer than 50 items
https://sellercentral.amazon.co.jp/gp/help/external/201051980/?ld=SEJP_SOA_service_01_exact_PC_Goo_asret_
Viewed on June 13, 2020
Amazon Fulfillment by Amazon (FBA) Overview
https://services.amazon.co.jp/services/fulfillment-by-amazon.html Viewed on June 13, 2020107

Activities of the Study GroupFirst Meeting
Date:
Content:

Friday, June 29, 2018, 13:00 - 17:00
Takamitsu Sawa, "Adaptation to the Fourth Industrial Revolution - Reorganization of theSocioeconomic System -Second Meeting
Date:

Thursday, August 2, 2018, 13:00 - 17:00

Content:

Koichi Futagami "The Race between Man and Machine: About the Implications of Technology for
Growth Factor Shares, and Employment by D. Acemoglu and P. Restrepo AER, 2018, vol. 108 (6)”Masaharu Miyawaki "Technology Development and Copyright Law"

Third Meeting
Date:

Friday, September 14, 2018, 13:00 - 17:00

Content:[Guest Speaker] Naonori Ueda (Vice Director General, Special Laboratory Director, RIKEN Center for
Advanced Intelligence Project, NTT Communications Communication Science Laboratories )"Technical Scenarios of the Fourth Industrial Revolution and Their Social Impact: The Arrival of an
Artificial Intelligence Society"
Fumio Sasaki "Fluctuation of the concept of' ownership' : minimalist, share, Mercari"

Fourth Meeting
Date:

Friday, October 26, 2018, 13:00 - 17:00

Content:

Tetsuya Shinkai: "How does the platform business change the market? - P2P Transaction, PF
Business and Analysis of Market Economy Naoki Wakamori, "Demonstrative Industrial Organization Theory and the Fourth Industrial Revolution"

Fifth Meeting
Date:

Friday, November 30, 2018, 13:00 - 17:00

Content:

Takanori Ida “Platform Economics: Why do they be the sole winner? Think about the secret of Google
and Uber Business”
Koichiro Onishi, "Intellectual Property System and its Effects, Problems in the ICT Field"

Sixth Meeting
Date:

Friday, January 25, 2019, 13:00 - 17:00

Content:[Guest Speaker] Akinobu Shuto (Associate Professor, Graduate School of Economics, The Universityof Tokyo) Fourth Industrial Revolution and Accounting Research
Ken-Ichi Shimomura, "The Role and Corporate Group of Japanese TV Stations in the Fourth Industrial
Revolution"

Seventh Meeting
Date:
Content:

uesday, March 12, 2019, 13:00 - 17:00[Guest Speaker] Hiroyuki Odagiri (Professor Emeritus, Hitotsubashi University, Adviser, Fair Trade
Commission) "Platform Economics and Competition Policy”[Guest Speaker] Toyoaki Nishida (Professor, Graduate School of Information Science, Kyoto
University) "What Artificial Intelligence is Bringing"108Eighth Meeting
Date:

Friday, April 12, 2019, 13:00 - 17:00

Content:

Koichi Futagami "Risk Avoidance and Economic Growth in an Aging Society"
Masaharu Miyawaki " The subject of copyright infringement"

Ninth Meeting
Date:
Content:

Friday, May 24, 2019, 13:00 - 17:00
Tetsuya Shinkai "Causes of Apple's Poor Business Performance -The Agony of High-Spec Pursuing
Manufacturer -”Naoki Wakamori "Adaptation of Competition Policy to the Fourth Industrial Revolution - Digital Cartel
and Declining Industries"

10th Meeting
Date:

Friday, June 28, 2019, 13:00 - 17:00

Content:[Guest Speaker] Yusuke Zennyo (Associate Professor, Institute of Business and Accounting,
Graduate School, Kobe University) “Multi-Sided Platforms "Koichiro Onishi, "Innovation and patent rights in the ICT field"

11th Meeting
Date:

Friday, July 26, 2019, 13:00 - 17:00

Content:

Takanori Ida: “Smart Grid Economics: Evidence Policy led by Field Experiments, Behavioral
Economics, Big Data"
Naoki Wakamori "Adaptation of Competition Policy to the Fourth Industrial Revolution - Digital Cartel
and Declining Industries"

12th Meeting
Date:
Content:

Friday, September 20, 2019 13:00 - 17:00(Guest Speaker) Susumu Sato (Graduate School of Economics, The University of Tokyo, Institute ofSocial Sciences) “Business Model of Platforms and Competition Policy”
Ken-Ichi Shimomura "About Voluntary Provision to the Video Sharing Sites"

13th Meeting
Date:
Content:

Friday, November 8, 2019, 13:00 - 17:00[Guest Speaker] Daisuke Kanama (Associate Professor, Department of Management, School of
Economics, College of Human and Social Sciencese, Kanazawa University) "Demonstrative
Research on Outcomes of Japan's Industry-Academia Collaboration Activities and Factors to Promote(Inhibit) Open Innovation"
Masaharu Miyawaki, "Problems over the Use of Trademarks on the Internet", "Right to Be Forgotten"

14th Meeting
Date:
Content:

Friday, January 24, 2020, 13:00 - 17:00[Guest Speaker] Ryosuke Shimizu (Graduate School of Economics, Kyoto University) "Doesautomation technology reduce wage?"[Guest Speaker] Kohei Okada (Graduate School of Economics, Osaka University) “Interrelationshipbetween Mechanization and Economic Development"

15th Meeting
Date:

Friday, February 14, 2020, 13:00 - 17:00

Content:

Report and Study Group Meetings in Fiscal 2020
* All meetings are held at the International Institute for Advanced Studies.

109

Members of the study group
Representative
Takamitsu Sawa, Vice Director, International Institute for Advanced Studies,Professor Emeritus,
Kyoto University
Takanori Ida, Professor, Graduate School of Economics, Kyoto University
Koichiro Onishi, Associate Professor, Faculty of Education and Integrated Arts and Science,
Waseda University
Ken-Ichi Shimomura, Professor,

Research

Institutefor

Economics

andBusiness

Administration, Kobe University
Tetsuya Shinkai, Professor, Graduate School of Economics, Kwansei Gakuin University
Koichi Futagami, Professor, Graduate School of Economics, Osaka University
Masaharu Miyawaki, Professor, Graduate School of Law, Ritsumeikan University
Naoki Wakamori, Assistant Professor, Graduate School of Economics, The University of Tokyo* Positions are as of April 1, 2020.

110

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Adaptation to the Fourth Industrial Revolution– Reorganization of the Socioeconomic System –Original Japanese Edition, September 2020
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